If you mistreat your suppliers or take them for granted …
They might defect …
Warning: NNSFW (Not Necessarily Safe For Work)
Courtesy of College Humor . com.
Category Archives: Supplier Management
They Killed Kenny … You B@st@rds!
Those of you familiar with South Park are aware that poor, cursed, Kenny McCormick died in nearly every episode during it’s first five seasons, before staying dead for a year, and then returning to die occasionally in seasons seven through thirteen. However, even though Kenny McCormick has died over 100 times, the number of deaths he has experienced is only a fraction of the number of companies killed last year because many companies wouldn’t pay on time!
A recent article over on SupplyManagement.com, which summarizes research from the Federation of Small Businesses ( FSB ), notes that approximately 4,000 small suppliers were forced out of business last year as a result of late payment. That’s just small suppliers tracked by the FSB! How many companies would still be in business if their customers simply maintained and adhered to fair payment schedules? How many? Think about it.
So, if you are extending your payment teems to sixty days, ninety days, and beyond … all I can say is … you killed Kenny … you b@st@rds!
Characteristics of World-Class Supply Management Organizations
Bob Rudzki, President of Greybeard Advisors, author of Beat the Odds, and blog master of “Transformation Leadership” recently penned a piece for Chief Executive on “Supply Management”. It is, of course, a great piece that summarizes how world-class organizations are different and how their leaders adopt aggressive objectives and focus on key categories that will make a profound difference in the short and the long term. Specifically, world-class leaders in supply management
- set revenue enhancement goals and work with suppliers to achieve them,
- pursue achievable year-over-year cost reductions,
- develop expertise in commodity risk management,
- focus on optimizing working capital,
- institute “asset recovery” programs, and
- optimize capital project costs.
This is because the total impact from a comprehensive supply management transformation involving all of these core initiatives can be enormous. An manufacturing company with an 8% (or less) ROIC can transform itself into a 20% performer. That’s huge.
For more information on how your company can achieve these improvements, check out “the hidden lever”, his tips to “avoid corporate death”, and the many greybeard resources.
10+2 Strategies for Managing Suppliers
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.
A Brief Review of Supplier Relationship Management Basics
A recent article over on SupplyManagement.com on “6 steps to better SRM” provides a good review of the basics. Even though times are tough, chances are, they are tougher for your supplier which makes good relationships even more important. First of all, you want to be the customer of choice because your supplier likely has less staff to service their customers. Secondly, you want to be the first to know if any of your strategic suppliers are in danger of going under, so you have a chance to either bail them out or find other suppliers before you run into inventory problems. Finally, like all recessions that have come before, this recession will end, demands will rise, raw material shortages will occur, production capacities will be hit, and you definitely want to be the customer of choice next time this happens.
So, how do you start? The SupplyManagement.com article recommends these basic steps:
- Segment the Supply Base
You need to know which suppliers are tactical and which are strategic because you focus your efforts on your strategic suppliers. - Secure Executive Sponsorship
C-level executives must be engaged in the management of the most critical strategic suppliers and be behind your SRM initiatives 100%. - Embed Processes and Governance
Processes, roles, and responsibilities need to be documented, readily accessible, followed, and kept up-to-date so they can be continued in a repeatable manner if a key relationship manager leaves or if you start working with a new strategic supplier. - Use Technology Effectively
Technology is the great enabler for Supply Management. Use it! Need help finding a vendor? Check the vendor post index and the company directory on the resource site. - Enhance Your People
Train, train, and train … in what other profession can training deliver 10X, 50X, and even 100X returns when your supply managers find ways to take 10% off of multi-million dollar purchases either through better terms or by working with your suppliers to take cost out of the process? - Measure the Benefits
Demonstrate the results, and use this leverage to keep your technology and training up to date and to get more bodies approved to allow you to enhance your relationships and roll the SRM initiative, which will start with a core group of your most strategic suppliers, to more suppliers over time.