Daily Archives: August 30, 2009

10+2 Strategies for Managing Suppliers

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A recent article in Industry Week had a good article that outlined 10 strategies for managing suppliers. In brief, they were:

  • Understand the true cost and value of the supply chain.
    A supplier cannot be properly evaluated unless you understand the costs they entail and the value they bring.
  • Realize that supplier strategies go two ways.
    It’s not just what the supplier can do for you, it’s also what you can do for the supplier to help the supplier lower costs. Can you secure the raw materials cheaper? Pay earlier and mitigate their need for expensive credit lines (and thus reduce your total cost)?
  • Accept accountability.
    You need to be planning sufficiently in advance to insure that you place all orders with acceptable lead times. You need to insure a supplier has the information they need, when they need it.
  • Incorporate appropriate service levels and metrics into agreements.
    A supplier needs to know precisely what is expected of them if they are to live up to your expectations.
  • Spend equal time aligning incentives and penalties.
    Despite your inclination as a risk mitigator to always worry about the worst cases, you need to also consider the best cases and incentivize the supplier to deliver above and beyond their commitment.
  • Share critical information as early as possible.
    Sharing information constantly, with appropriate security and confidentiality, is critical for successfully managing a supplier relationship.
  • Plan for everyday exceptions.
    Even the best of plans will go astray. Make sure you have a plan that specifies how emergencies will be handled and which party is responsible for what.
  • Plan for major contingencies.
    And make sure to walk through the plans regularly with your supplier.
  • Expect and reward honesty.
    The best supplier relationships require honesty when exceptions to normal operations occur. Companies should require immediate notification without penalty when critical supplier situations occur.
  • Make relationship meetings meaningful.
    Relationship meetings should focus on critical issues, areas for supplier improvement and discussions on how the buying organization can improve the relationship.

To this list, I’d add the following two:

  • Make sure the scorecard goes both ways.
    A relationship is a two way street and the best way to capture this is to do a two-way scorecard. You can’t expect your supplier to deliver stellar performance if yours is sub-par.
  • Educate and train.
    Don’t just tell your supplier what you expect of them, show them and give them the training they need to exceed expectations.