Many companies have adopted a haphazard approach to supplier relationship management. Dennis Snyder, general managing of lighting and decorative hardware with Kohler Co., tells what they need to do in order to correct that oversight.
Q: How are companies approaching the whole issue of supplier relationship management today?
Snyder: What I've found is that many companies treat supplier relationships a bit too haphazardly, meaning they treat them as strictly transactional relationships, or they look at suppliers from the standpoint of how to wring costs out of them. What I recommend is that they take a more structured approach of understanding where their relationship stands with a supplier, then determine how to develop a structure for best utilizing that supplier for the benefit of both businesses.
Q: Procurement and supplier relationship managers are under pressure to cut costs because that's what the folks above them tell them to do. How do you get that message up to the executive suite — that we need to take a new approach to supplier relationship management?
Snyder: In many cases, if you're just looking at the total cost of a supplier and its products, you might not be leveraging its capabilities for new product development, or its access to resources in engineering or other activities that could provide greater value to your business. The supplier isn’t able to fund or demonstrate those to you because you're only looking at it from a cost standpoint. It’s about getting total value out of a supplier, not just total cost.
Q: Is there a trend these days of incorporating the concept of risk management into supplier relationships?
Snyder: There absolutely has to be. You shouldn’t be looking at suppliers only in terms of their performance for you and their metrics. You also need forward-looking visibility to expected problems. It's through anticipation of issues that need to be incorporated into a risk system that allows you to understand where to proactively take measures. They might concern capacity issues, financial risk of insolvency, or even the possibility that the supplier isn’t protecting your I.P. [intellectual property] as effectively as it should.
Q: How do you come to know your suppliers?
Snyder: With a very thorough metric system, as well as the willingness to ask difficult questions. Companies often assume that the supplier is managing its business correctly. There might be things the supplier isn’t looking at, and when you ask those questions you trigger the thought. I've found that suppliers are willing to share information if you make the question very clear and obvious.
Q: How do you achieve visibility of a multi-tier supply chain, and avoid surprises caused by problems with sub-suppliers?
Snyder: There has to be a point where you say this is the supplier I choose to work with, and I want to develop a level of trust so that it will be open and sharing with lower-tier suppliers. If you have ulterior motives, suppliers aren't dumb. They'll see them, and you’ll start to see the blocks come up in terms of your ability to gather information from them.
Q: Isn’t the first step determining who your primary and most important suppliers are?
Snyder: Yes. I recommend using a strategy by which you segment your supply base to understand who your core partners are, who are the partners you'd like to grow with, and which ones you want to leverage on a limited basis because they might potentially be serving a competitor as well. You also need to closely monitor and evaluate new suppliers, to determine the risk of unacceptable performance.
Q: How important is it that companies avoid becoming trapped in a sole-supplier situation?
Snyder: I find the question about sole versus dual sourcing as difficult to answer as that of centralized versus decentralized functions in a corporate office. You really have to look at your business model. You have to understand who your supplier partners are, and whether or not sole sourcing creates a risk of severe interruption in your supply chain. You have to assess the relationship and ask, do I need to begin looking outside? Because once you take that step, it's important to know that there could be consequences. It could affect the relationship with the primary supplier forever. I'm not suggesting you don't do that — only that you need to assess and understand the situation before automatically taking that action.
Q: But the last thing you want to be doing is knocking on the door of a supplier with whom you have no relationship in an emergency situation saying, "Please help me." That supplier isn't necessarily going to jump, is it?
Snyder: That's correct. Today there are many companies with supplier relationships lasting decades, and when you've built that length of relationship, you'll find that they're the ones that respond to you. Those are your core partner suppliers, and I recommend you understand who they are, so that when you have an issue, they're the ones you count on to react. Remember that suppliers are receiving the same ask from potentially multiple competitors of yours, and they'll evaluate whom they prioritize based on business level.
Q: How does one ensure continued performance and quality from a supplier with which it has a relationship?
Snyder: It's about open, transparent sharing of metrics. It’s very important to ensure the transparency of data you collect and they see — that you respond to them about things like on-time delivery or shipment performance. It must be transparent to both parties, so that you can move beyond whether or not the metric is accurate and begin working on how to improve it, and drive sustained performance over time.
Q: Are you keeping your own report card on the supplier, or are you asking it to assess its own performance?
Snyder: It's both. I recommend that you maintain the scorecard and share it with the supplier, but that you also circle back to make sure that the supplier’s assessment of its own performance is aligned with what you as the customer needs to see.
Q: How important is it to get supplier feedback about why it might not be able to fulfill your expectations because of something that's going on at its end?
Snyder: It's absolutely important to do. You have to understand whether you’re a customer that's easy to do business with. Companies don't often look at it from that standpoint.
Q: How can companies begin the process of becoming a more active partner with suppliers?
Snyder: First, decide that you want to manage your supply base with intent, and not just focus on driving out costs or enforcing specific performance measurements. You should be assessing the relationship on several fronts, including new-product development, business stability, and supply-chain risk. When you have that understanding, then you can begin assessing where a supplier fits in your strategy. Is it a true partner? Or do you need to be seriously evaluating whether it will be your supplier for the long term?
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