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April 06, 2010
Eliminate, Simplify, Integrate
Developing collaborative partnerships with suppliers
Developing collaborative partnerships with suppliers after they’ve carried out their productivity and cost savings programs, companies begin to realize that big opportunities lie outside their organizations.
Aside from a lower pricetag on materials, the desirables include on-time and complete deliveries; a supplier thatÕs responsive to changes in demand; guaranteed high-quality supplies; real-time updates on the delivery status; and the prerogative to order just the exact quantity needed from a supplier, no matter how small an amount it is.
It sounds like a far-fetched idea but there is actually a scheme to achieve all this, and it’s called Supplier Partnership.
A Supplier Partnership is an arrangement wherein both manufacturer and supplier have the mutual goal of reducing a product’s total cost while improving its quality, along with that of their own services. Such a relationship ideally entails a long-term partnership, and is never a one-sided affair Ñ both must share an equal amount of risks and benefits. These prerequisites would enable both firms to cultivate trust and make use of each otherÕs resources to improve their performance.
Perhaps the best model of a successful customer-supplier partnership is Apple, creator of the iPod and newly launched iPad. Apple managers have established a reputation for continuously and intensively working with suppliers to develop innovative products. Both the firm and its vendors share information constantly and comply strictly with quality and security standards, enabling them to jointly come up with products that surprise and delight consumers worldwide while keeping competitors on their toes.
Firms with successful supplier-manufacturer partnerships have embarked on the following high-leverage areas:
Inspection-free Deliveries. Instead of a pre-delivery and post-delivery inspection of goods, a supplier partnership would do away with multiple quality and quantity checks by having only one assurance system for both vendor and customer.
To do this, the two sides must align their processes and capabilities and integrate their quality systems in a way that would allow them to eliminate duplicate checks while still guaranteeing zero-defects.
Supply Chain Visibility. Supplier partnerships must maintain real-time information exchange between vendor and customer. The former should be able to easily access updated material demand projections and even on-hand inventories at the customer’s storage facilities. Customers, meanwhile, must be able to access material inventories at the vendor’s warehouses and opt to request that the vendor adjust his production line schedules if there’s a sudden change in requirements. These would allow both firms to increase their responsiveness, flexibility and reliability while lowering their inventories.
Specification Review. Material specifications, traditionally settled at the negotiation table, are rarely brought up after the contract is signed. In a supplier partnership, however, specifications are a regular topic that is open to change or modification. By monitoring the performance of a customers’ products, vendors can tweak material characteristics which in turn can save a customer from extra production costs and the vendor from chronic complaints. Philippine construction firms achieved this by partnering with a large international cement supplier to help them establish and monitor the specifications of pre-mixed concrete for expensive building projects. In turn, the scheme allows the cement supplier to capture a considerable market share, despite him having to sell his products at a premium over the competition.
Early Supplier Involvement in New Products. Manufacturers need to constantly introduce new products to meet changing consumer needs. The vendor’s involvement in the product design process not only prevents costly last-minute changes but also gives vendors a chance to contribute ideas for improvement. Early involvement is perhaps the most volatile area in a supplier partnership as it involves trusting a vendor with a firm’s confidential product strategy Ñ a delicate decision particularly when the vendor also serves the competition. But the benefits, in terms of speed of introduction and total product cost, may just outweigh the costs and security risks.
Collaboration is a popular buzz word for manufacturer-supplier relationships. Buzz words, however, don’t improve business; action and progress do. Many partnerships have fallen as fast as theyÕve been formed because companies did not really understand that collaboration requires breaking down barriers within themselves and between them and their vendors; and that joint activities involve shared commitment and mutual trust from top management down to the rest of the organization. The results, as Apple have shown, will speak for themselves.
Mr. Jovy Jader is a management consultant and regional speaker on Supply Chain Management. He has directed and implemented Supply Chain Management projects both in the country and abroad, which have resulted to company-wide improvements in inventory, total cost, customer service, response time, quality, and on-time delivery. Mr. Jader was formerly with Procter & Gamble Philippines and Coopers & Lybrand/PricewaterhouseCoopers. Should you have questions or comments e-mail to jovy@highimpactasia.com.
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