Category Archives: Supplier Management

Great Tips on Negotiating for Mutual Benefit

A recent article in eSide Supply Management on “Negotiating for Mutual Benefit” which outlined seven tried-and-true strategies for your organization to get more of what you both want from procurement negotiations had a number of tips that should not be forgotten if the goal is mutual benefit.

Survey the Landscape and Share the Wealth
Don’t limit purchases to nearby suppliers as suppliers in other geographies might bring additional benefits. Plus, if the number of suppliers is limited, spreading business among multiple suppliers can help to ensure their financial security and maintain a competitive market.

Negotiate for cooperation using the rules of “smartnership”
Don’t use win/lose tactics. Confrontation is not likely to elicit the collaboration and trust necessary for success. Instead, work with the supplier’s negotiating team to come up with a win/win scenario that the supplier will be incentivized to deliver on.

Insist that your supplier make a decent profit
A supplier that does not make a decent profit will not stay in business. It doesn’t matter how great the deal is if the supplier does not stay in business long enough to deliver. Plus, a buyer who insure’s a supplier’s financial success is likely to become a preferred customer, and this can deliver benefits for years to come.

In other words, the best results come from ensuring that your success is your supplier’s success.

DnB’s Mobile Capability is Good But …

… it’s no substitute for the real thing.

There’s been a lot of hype recently about Dunn & Bradstreet’s new Supplier Risk Manager Mobile functionality, and a lot of coverage on the blogs. I’m not going to say it’s undeserved, as it is one of the first enterprise applications in the supply chain space to make an effort to embrace mobile computing, but I’m not going to hype it either.

The reality is that while D&B are advertising three capabilities, there is really only one real use for the offering (and I’m pleased to say that, when grilled, they readily admitted it), which is:

determining whether or not an alert needs to be acted on now, or later.

A properly configured Supplier Risk Management System will be configured to send out alerts anytime something might need to be looked at — as the system will be ignored otherwise. When an alert is sent out, the first thing that a recipient needs to do is determine how serious the alert is and whether or not more research needs to be done and/or an action needs to be taken. With the mobile platform, that works on ‘Berries, ‘Droids, and iPhones, a risk manager can drill into the alert and see why it was issued (reduced credit score, late shipments, plant shutdown, etc.) and then drill into the supplier profile to determine what effect the reason for the alert could have on the supplier and/or the relationship. The manager can then determine if the alert needs to be followed-up on or not, and if the follow-up (whether additional research, a call, or another action) has to happen now or later. This is useful if the manager is on the road and doesn’t have easy access to the regular application or if the manager is just enjoying personal time and doesn’t want to drop everything to run to the [home] office to figure out whether or not something needs to be done — which could be the situation if the alert is for a major supplier of critical inventory.

The mobile app also allows you to search for suppliers and look up (random) company profiles, but let’s face it, that’s not something you’re going to be doing when you’re on the road or on personal time — especially when it’s so much easier on the full application. It’s neat, but you’re only going to be doing it when conduction sourcing events back at the [home/hotel] office. In short, it’s good, but don’t place unreasonable expectations on it, or they’ll be dashed.

To Optimize Supplier Management, Balance the Three R’s

A recent article over on Supply & Demand Chain Executive gave us seven steps to “balance supplier risk versus reward”, the two classic R’s of supplier management. And while it was a great article with seven pieces of great advice (if properly followed and implemented), it may not be enough to truly succeed going forward. There is so much risk at so many levels in today’s global supply chains, that it’s unlikely that the buyer can do enough to balance the end-to-end risk versus the reward without the supplier’s help — help that can be hard to come by if there’s nothing in it for the supplier. In other words, something is still missing.

But before we try to put our finger on the missing piece, let’s review the seven steps offered up by Byron Tatsumi of KPMG in the S&DC Executive article.

  • Define and Prioritize Supplier Tiers
    The most critical suppliers (to operations or revenue) should get the most attention.
  • Utilize Risk Assessment Processes for New Requests
    Regardless of whether the request is against a new or existing supplier. A supplier great at manufacturing electronic components might not be so good at machine parts and vice versa.
  • Implement Ongoing Supplier Due Diligence
    A supplier that is not considered a risk today could be a significant risk in a year and vice versa.
  • Utilize Balanced Category Scorecards
    And look at metrics and performance across the board — cost control, quality control, inventory control, etc.
  • Adopt Robust Performance Reporting and Issue Resolution
    That goes beyond a dangerous dashboard to highlight good, bad, and, most importantly, missing data to help you identify potential issues before they materialize.
  • Maintain Category Market Research Profiles
    Markets are volatile and dynamic. Tomorrow’s costs, and primary cost drivers, can be very different from today’s. Don’t source using last year’s data.
  • Implement a Supplier Six Sigma Program
    With the goal of continuous improvement in mind.

These are all great steps, and they will all help to get better performance from a supplier which will reduce a buyer’s risk and increase a buyer’s reward, but not all risks are supplier risks. Some of your most critical risks could be upstream risks in your supplier’s supplier’s supplier. While balanced scorecards and a good Six Sigma program might be sufficient to convince a first-tier supplier to implement some basic supplier management programs on their end, chances are that, without the right incentive, they won’t be enough to convince the first-tier supplier to work with its critical second tier suppliers to implement corresponding programs. It doesn’t matter if the first tier electronic components manufacturer has the best supply management program in the world if its second tier sub-component manufacturer doesn’t have any programs in place to insure continuity of supply of raw materials and basic inputs from third-tier suppliers.

Without some incentives, it’s unlikely that a first-tier supplier operating on a razor thin profit margin is going to take the time and energy required to transfer the modern supply management processes, that the buyer spent significant time and money on, to second tier suppliers. For that, there’s going to need to be some remuneration involved — the third R. If the supplier is rewarded for decreasing risks, lowering response times, and increasing quality, then it is going to have some incentive to helping its suppliers decrease risk, lower response times, and increase quality. If, instead of focussing only on penalty clauses, the buyer instead includes some reward clauses for improving performance, it’s likely that overall risk will decrease while buyer rewards (fewer stock-outs, fewer returns, etc.) increase as well.

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How Much Can You Really Save If You Switch Suppliers?

I was a little flabbergasted by this recent article over on SupplyManagement.com on how “switching suppliers will save billions” in the UK. While there are often savings to be had if you are willing to switch suppliers, the reality is that the savings, once the total cost is calculated and the total value derived, is never as much as you expect, especially if the product you are buying isn’t a true commodity. And even if it is, there are other considerations. Consider the following categories:

  • Office supplies
    Okay, you can always get a better quote. But remember that delivery charges often aren’t fixed (and will usually increase beyond the average rate of increase by the local delivery company) and the better the deal you get on negotiated SKUs, the more they’ll overcharge you on anything off contract (and, if you’re not watching, charge you even more than what you would pay in the office supply store down the street). The “loss leader” is always designed with your loss in mind.
  • Communications
    Okay, you can always get a cheaper (mobile) plan. But the cheaper the plan, the more you pay on overages, roaming, and long distance (LD). Have an executive with an unpredictable travel schedule? Watch your roaming and LD costs skyrocket! Have an organization where 20% of users don’t fit the basic plan profiles? Watch your overage costs skyrocket! For every penny you save, you’ll lose it somewhere else.
  • Janitorial Services
    You’ll always find someone cheaper. But they won’t necessarily do as thorough a job, and if you’re not careful, they might skip the background check and you might come in some day to replace the backup drive only to realize that the backup drive is gone!
  • Contingent Labour Management (CLM)
    You’ll always get a better quote, but the less a CLM firm gets to fill a position, the less incentive they have to spend the time to find the best person for the job, especially if your competitor is paying them more to fill that same position. And, in the long run, the few hundred you save costs you a few thousand (or tens of thousand) in productivity losses.
  • Custom Manufacturing Services
    You’ll always get a better quote, but what will you sacrifice in quality? And what if they put lead in the paint, melamine in the milk, or bisphenol A in the plastic? Then what?!?
  • Advertising Services
    I’ve no doubt that you can cut any quote in half, but advertising isn’t about cost, it’s about the revenue it helps you generate. Is it really worth hiring a B player at half the cost when the A player is five times as likely to come up with a campaign that helps the organization double sales?

So while you should definitely be willing to change suppliers, don’t rush a decision and be sure to let your current supplier compete in the go-to-market if they have been serving you well. Sometimes all they need to find savings (either by being more aggressive on margin or on innovation and finding more creative ways to serve you at a lower price point) is a little incentive. And remember, it’s not worth switching for 5% that will never materialize unless it’s a multi-million dollar contract. And even then …

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What’s the Fastest Way to Lose a Supplier?

It’s a good question, but is it one that has a statistically backed up answer? I have to admit, I don’t know, but I’d like to.

Recently, I came across this article over on the Get Satisfaction blog on the “fastest way to lose customers”. According to the article, the top three reasons that customers leave a company are because:

  • they move to the competition
  • they are dissatisfied with the products and service
  • they don’t like the treatment they received

However, most of the time, it’s because they don’t like the treatment they received. In fact, that’s the case seven (7) out of ten (10) times.

But how often does a supplier leave when they don’t like the treatment they receive? My guess is not very often. As long as the bills get paid, suppliers will put up with a lot more than customers, even if they shouldn’t. However, go long enough without paying your bills, and your suppliers will probably bolt faster than lightening after serving you with a summons. However, depending on order size and frequency, it could take a while before the amount owed is enough for the supplier to drop you.

So what is the fastest way to lose a supplier? And how do you prevent it from ever happening?

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