Get Out and Talk to Your Suppliers, I Beg of You
Supply chain management is one of the most important factors in a company’s success. SCM is complex, yes. SCM is a part of the business with many facets, yes. But if it is done properly, it can produce amazing things. Too often, though, SCM is way down on a company’s priority list, the last one in the pecking order, with no power at all.
First, what exactly is supply chain management? Supply chain management, or purchasing, or whatever tag it goes by in your company, is the part of your operations that makes sure materials or services are procured and delivered at the right time, price, quantity, place, and quality, every day or every minute if needed.
Often, SCM is a phantom operation in companies. Usually, the executive in charge of this area has a title such as chief procurement officer. But supply chain management should be much more than just procurement. SCM should monitor a company’s suppliers and service providers very closely. It should be continuously looking for the most suitable ones as partners—and conversely, it should be getting rid of the ones that are not up to snuff.
If an SCM department head is vigilant, the company will run well internally and externally. If SCM is done properly, it is also a vital asset for the company’s research and development departments as well as the marketing department. An efficient SCM can be very effective in bringing in new ideas from external discussions with partners or potential partners about market practices and market opportunities.
Obviously, the sales department can do this as well in a smoothly running company. A good leader will make sure everyone in sales is all ears, listening to what’s going on outside and reacting to it quickly.
A strong leader will also tell his SCM manager to go to the factory floors of a supplier or to their R&D departments and learn what other kinds of components they are cooking up.
The reality in some companies is that instead of the just-mentioned ideal scenario, where SCM staff is proactive and involved and always looking for new leads, SCM is merely a staff function. The actual purchasing is most of the time integrated into the operational unit. It is performed by a buyer who executes orders from other functions.
Some companies do separate purchasing from operations, making the distinction between strategic and operational purchasing. These are all nice terms, and they all fit nicely into organizational diagrams. But they don’t do much other than that.
All these operations should also be very attentive to market developments. For example, what new products or technologies are used or are in development that could make their own product easier and more cost-efficient to build? There are certainly suppliers who could be in a position to offer new and useful functions for your products that you haven’t even heard of.
Too often, the supply chain management constrains the suppliers by merely telling them how to do things—not allowing the supplier to actually propose solutions.
Let’s look at some specifics. Anyone who has tried to sell electronic components used in building machines that are later sold to end users knows what I’m talking about. We are not talking here about selling cars to end users. These reps have felt the huge resistance from procurement people who answer your sales call.
Good luck trying to make a cold call to one of the larger companies like ABB, Siemens, GE, Wӓrtsilӓ Power Plants, or Aker Solutions. The first problem you will encounter is getting hold of the procurement person or the supply chain or category manager. The challenge is that in the larger companies, the purchasing people hide very effectively behind “gatekeepers.” They are more protected by the gatekeepers than CEOs or CFOs.
One OEM website tells you, for instance: “[We] work with external market intelligence companies to understand current market trends. As a result, we have confidently identified our primary suppliers within each category.”
So, SCM at Company X does not have a chance to get new signals from the market, only from “market intelligence companies.” If I were the CEO of this company, I would kick their butts and tell them we need all possible signals and good ideas from the market that we can find ourselves!
On one occasion, an operator (the gatekeeper) answering the phone at a company I wanted to speak with told me, before I could even say much past “Hello,” that the buyer “was not interested.” I asked her how she knew that before I had even told her about my company and what I was selling. As an experienced R&D engineer, I knew that this company did use the components I was selling, electrical transformers.
Unfortunately, this is not the only case I have encountered. Anyone in sales who really places cold calls knows what I’m talking about.
The result is that purchasing people have no direct contact with new ideas. They are hiding behind online purchasing platforms, which prequalify the suppliers.
Some firms use gatekeeper companies to screen potential suppliers. Potential suppliers pay a fee to register. In my view, it is really nothing more than a superficial money-collecting process that provides very little to the customer.
For the smaller companies, gatekeeper fees are quite expensive. If they want to move further into the process, they pay more for the chance to make a pitch to the client. The end result is that a potential supplier does not have much of a chance with the larger companies.
Gatekeeper companies just check data, nothing more. A true assessment must be done at a supplier site, not on paper. That’s why in supply chain, we often talk about how finding good partners is like finding a spouse—you have to have a lot of meetings before you close the deal and tie the knot.
Corporations that use “supplier prequalification companies” should acknowledge that these are not market intelligence companies—as they are often called. Not a single one has contacted companies with medium- or small-size capabilities. In fact, the supplier must make the initial move to register itself in such a “community,” as they call it nicely.
Good companies want their employees to keep an eye out for potential new market trends, production possibilities, and new components that could make the company’s products cheaper to produce and perhaps more reliable. With new information, they could even add features.
Naturally, this does not happen if managers constrain their people about contacting and visiting potential suppliers. A good leader will expect supply chain management to get out and learn what’s going on.
Signals from the market are crucial, and a good manager will encourage staff to be fast and nimble, to listen, watch, and network. As a manager or CEO, you cannot delegate this task to anyone externally. You must move your own people!
As a leader, you absolutely must tell your engineering and R&D people to scan the market to find methods or software that makes their product development and engineering tasks faster and more reliable. A strong leader will expect them to discuss with other companies how they do their development. Measuring your own resources against external peers is more relevant than closing your eyes to the outside world.
The same goes for production. Very successful production managers will occasionally talk to competitors or suppliers about new methods in production or even about getting ideas for simple but effective small-step improvements.
It is beyond my comprehension when it comes to supply chain management why on earth the company’s supply chain team would use external companies to prequalify suppliers. That should be one of the key tasks of SCM—to look around at what is available and bring the goodies home. Whether everything is applied that they bring home is another question, but at least new ideas are crossbred with internal ones.
Talking openly with suppliers about your challenges is an excellent way to improve your product development and production and keep cost levels competitive.
This piece is excerpted from Lead Now, Manage Later: The Straight Shooter’s Guide to Business Success.
R. Paul Vuolle, CEO of Bellevue SME Advisors GmbH in Switzerland and Germany, works actively with small and medium (SME) size manufacturing companies in Europe in SCM/Outsourcing, logistics, turnaround and restructuring, market expansion, as well as succession planning and financing. He also frequently supports technology start- ups in building up their business.
