Supply chain management (SCM) is often viewed by small and medium-sized manufacturers as a cost-driven, transactional function. But the cyclical nature of disruptions highlights the critical role of strategic supplier relations management (SRM) in ensuring business continuity and growth. Effective SCM takes more than simply securing the lowest per-unit cost. It's about building a resilient network of suppliers that fosters innovation and mitigates risk. By implementing a continuous improvement approach to SRM, you will elevate your entire business to new heights.
This article delves into five key elements of effective SRM, demonstrating how it goes beyond cost optimization to become a cornerstone of continuous improvement for your entire business.
1. Segmentation: Prioritize Based on Importance and Risk
Not all suppliers are created equal. Segmenting your supplier base by category, type, and importance allows you to prioritize your resources and tailor your interactions. As you segment your suppliers, you’ll also want to consider:
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Identifying High-Impact Suppliers: Pinpoint suppliers that are crucial for high-margin work or those holding unique capabilities essential for your operations. These suppliers warrant a higher level of engagement.
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Balancing Redundancy with Opportunity: While a single source might offer cost advantages, consider the risks associated with sole sourcing. Strategically introduce redundancy for critical components to mitigate disruption.
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Optimizing Supplier Base Size: Managing a vast network of suppliers can dilute your negotiating power. Consider consolidating your base while ensuring redundancy for vital components.
2. Communication: Clarity and Transparency Build Trust
Open and consistent communication is the bedrock of any strong relationship. By establishing and defining clear channels of communication, you set the stage for a collaborative partnership.
Outline your preferred communication methods (phone for urgent matters, email for routine communication), response times, and primary contacts for each supplier.
Embrace transparency and plan to over communicate. Be clear to your suppliers that you want to eliminate surprises as much as possible. You expect to be notified of potential disruptions, such as delayed deliveries. Let your suppliers know as your priorities change, especially if you’ve told them your needs are urgent, so that they better plan their production. Likewise, you should inform your customers of potential disruptions at your end, which will allow them to adjust their operations accordingly.
Don’t forget to develop escalation protocols for handling unexpected issues. Define escalation processes for addressing concerns and resolving conflicts efficiently.
3. Measurement: Be Proactive and Focus on Improvement
Building strong relationships with suppliers, especially smaller vendors, will provide significant cost benefits. Measuring performance helps identify areas for improvement and fosters a continuous learning environment.
Start with building a culture where everyone, from the C-suite executive to the forklift operator, is committed to tracking performance metrics. Define key performance indicators (KPIs) that align with your business goals. These could include on-time delivery, quality control, and adherence to cost estimates.
Next, utilize your data for improvement. Performance data should be used proactively to drive development and identify opportunities for collaboration with suppliers.
Embrace transparency in measurement. Utilize scorecards that provide clear insights into performance. Use trends to identify areas for improvement collaboratively. If a supplier’s failure rate or delivery times are tracking in the wrong direction, let them know as soon as possible so it does not become a big issue.
You can also prioritize through measurement. Monitor performance continuously to adjust your supplier priorities. Underperforming suppliers might require development or even replacement, while exceptional performers deserve focus and potentially increased business opportunities.
4. Reputation: Become the Customer of Choice
For manufacturers, fostering a reputation as a "customer of choice" attracts and retains top-tier suppliers. This goes beyond simply increasing your spending with a vendor. Here are a few ideas to consider:
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Align With Supplier Strengths: Ensure your business model aligns with the core competencies of your suppliers; just because a process is a capability doesn’t mean it is a core competency. This fosters stronger collaborations and mutually beneficial outcomes.
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Consider Total Costs: Look beyond the per-unit cost and factor in total costs, including shipping, lead times, and supplier capabilities.
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Share Metrics and Transparency: Implement a system for sharing performance metrics with your suppliers and encourage open communication regarding improvement areas.
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Embrace Feedback Loops: Actively solicit feedback from your suppliers and provide them with access to your own scorecards. This two-way communication fosters trust and is especially important when building strong, enduring partnerships with key suppliers.
5. Collaboration: Building Trust for Mutual Benefit
Building trust with your suppliers unlocks a wealth of opportunities for both parties. Collaborative partnerships drive innovation, improve efficiency, and foster problem-solving capabilities. Trust-based relationships also provide peace of mind that your supplier has your back and that you have theirs.
Joint problem-solving is a great way to build trust. Approach challenges as a team, working collaboratively with suppliers to find solutions. Encourage open communication to identify root causes and prevent future occurrences.
Engage suppliers as early as possible. If you integrate your suppliers into the design process early on, you might be able to save on your product development process as you will get feedback more quickly.
It’s important to remember that it takes a two-way relationship for successful SRM. Working toward a mutual benefit for both parties will serve you better than “the customer is always right.” Take the time to understand what causes errors, and resolve errors as a relationship for ongoing work, not just seeking compensation for what went wrong (though that may be appropriate).
Eliminate unnecessary surprises. Let people know about changes that might indirectly impact them, and expect the same in return. If circumstances out of your control mean you are not going to meet the delivery deadline, let your customer know ahead of time instead of surprising them. If you were getting a shipment late from a supplier, you would rather want to know ahead of time.
Elements of Successful SRM Are Important Throughout Your Company
Managing your supplier base is an act of continuous improvement – clarity, expectations, communication, transparency, being proactive, providing feedback loops, etc. Effective SRM is about building a resilient network of suppliers that fosters innovation and mitigates risk. Your local MEP Center can help you develop a successful continuous improvement approach to SRM.
ABOUT THE AUTHOR
Ryan Burns
Ryan is a supply chain specialist for Manufacturer’s Edge, which is part of the MEP National Network. He has more than 20 years of experience in global supply chains. He works with companies to enhance their supply chain performance while mitigating risks.
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