Supplier Management and Development

Supplier Management and Development, Design of a good supplier management system is very important, and typical performance metrics will center

Henry Ford owned everything. He owned the mines that provided ore for his mills that in turn provided steel for his factories. He even owned the railroads to move his iron ore and steel. He sold the cars himself and owned the entire distribution network to do that. You don't see too many companies like that anymore. Unlike Henry Ford, today's companies tend to do one or two things they are really good at and then hire someone else to do the rest. That's why managing your suppliers is more important today than it has ever been.

Here's some things I want you to keep in mind about managing your suppliers. Design of a good supplier management system is very important, and typical performance metrics will center on such things as cost, quality, and delivery. One key to an effective measurement system is to have a standard for comparison, a benchmark for performance. You are not comparing companies to each other. You are measuring each company against a predetermined standard of acceptable or even excellent performance.

This allows you to be much more objective in evaluating your suppliers. Determine the criteria that allows you to select the best of the supplier candidates. This can be based on how long you have had a relationship, on past performance, or on the volume of business you do. You also want to make sure you gather the right data to measure that performance correctly. And sometimes you gather data from within your company, like on-time delivery performance to the factory. Or you might ask the supplier to provide some data for analysis, like reject and rework rights or other production details. A really good method of collecting data is to visit the supplier company on a regular basis to observe their operations firsthand and collect data yourself.

Evaluating your suppliers is the first step in determining the right suppliers for your company. This is called supply-based optimization. And the goal is to not only have the best suppliers, but also to have the right number of suppliers. If you have more suppliers than you can effectively manage, you might not recognize that you're paying too much for this item. Or you might not catch a quality problem in time to prevent a factory disruption. But you don't want to have too few suppliers either. One supplier is risky business. There's a high risk of disruption if a fire or a natural disaster takes the supplier's factory offline. And, of course, it's harder to negotiate a favorable contract when you single-source a key item.

Once you've optimized your supply base, helping to develop the capabilities of those suppliers should become a priority. As you grow, you want your key suppliers to grow. And you want them growing in the same direction as you. Optimizing your supply base is a pretty big project, so it's always best to begin on a small scale. For example, look at the supply base for one particular item or the key suppliers at one particular location. Your early successes at this level can be rolled out to other purchased items, other locations, and even larger programs.