Strategic Supplier Management

Supplier management is a key component of any business. If you do not have the right suppliers, you will not deliver on time, will have to do rework some items, will have to work extra time to either make the corrections or make up for delivery delays, will have to review your schedule, have to put out even more fires when already there are plenty… How much is all this costing you in time and in dissatisfied or lost customers? Have you already done the math? I recommend you do because you will be surprised with the results.

COVID has also brought its share of challenges. Are you buying from China or Asia because it’s cheaper? You have surely experienced delays in receiving your components if not a complete stop of your deliveries. This may have put your ability to deliver your products on time to your customers at risk. Which in turn has created financial problems because if you don’t ship to your customers, the money doesn’t come in and you won’t be able to pay for day-to-day expenses. Already the management of cash flow is often a challenge in itself, with COVID it is only worse.

I am often told by my customers, “I have no control over my suppliers”. “They often deliver late, but there is nothing I can do.” This is the problem. You must have control over your suppliers. You need to work with them, help them, collaborate with them so that they can deliver quality products to you on time and meet your expectations.

Change your thinking that you don’t have control of your suppliers and do an exercise in strategic supplier management and finally have control and eliminate the problems that I just mentioned.

To do this exercise, you must first list your suppliers and establish for each the items, quantities and value of what was delivered.

With this list you must identify the critical components for your business. Critical means that the component has an impact on your deliveries. Each company has different criteria depending on their reality. For example, for a business a component might be critical because the delivery time is very long and dictates the overall planning. For another, the quality or certifications required, such as in the case of food companies (HACCP) or pharmaceuticals (BPF and FDA) could be critical.

Every organization has its own reality so it’s up to you to identify what is critical to you. Then ask yourself the following questions: do you have good, local suppliers who can deliver quality material to you on time? Do you have multiple vendors for each critical component, so you may have flexibility if a vendor has issues delivering to you?

Identify the actions required to have quality and trusted suppliers. Mostly, local suppliers.

Calculate the costs incurred for having suppliers over which you do not have control ($ gain you will have). Then calculate the costs to have local and trusted suppliers ($ investment). Calculate the payback time for this project, dividing the investment over the earnings. You will see that you have everything to gain from doing this exercise. There is nothing like numbers to make us get things done and help us take action.

If you need help with a strategic planning exercise for your suppliers, contact us!

Have a great transformation, Liza.

 

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