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You’ve evaluated your suppliers using your supplier scorecard. Some have good scores, while others have a long way to go. Does this mean you should stop doing business with them?
Not at all!
Before ending a long-term business partnership with a supplier, you should first make sure you’ve done everything you could to save that relationship. This means discussing your expectations, what they should improve, and coming up with a supplier development program.
What is a supplier development program?
Supplier development is the process of working with suppliers whose scores are low, on a one-to-one basis, with the goal of improving their performance. At the end of this process, you should have a detailed plan of action, along with a deadline by which they should implement each change. This is the supplier development program.
For example, let’s say a supplier provides excellent quality products, but these products always arrive too late, delaying your entire supply chain. You could stop doing business with that supplier, or you could collaborate with that supplier and find a solution so that products arrive on time. This second option is mutually beneficial.
What are the advantages of a supplier development program?
A well-designed supplier development program ultimately leads to better overall supplier relationships because it provides:
full transparency between your organization and your suppliers;
improved collaboration between your organization and your suppliers;
streamlined and reduced sourcing activities and lead times;
improved quality, manufacturability, and reliability for new designs (this can also serve as a driver for innovation);
increased supplier responsiveness;
increased customer satisfaction;
increased awareness of supplier diversity;
increased visibility of full supply base to procurement, quality, and even management departments;
enhanced (end) customer satisfaction.
How do you come up with a supplier development program?
No two buying organizations, suppliers, or industries are alike, so there’s no one-size-fits-all supplier development program that applies to all buyers and vendors. That’s why you need to work with each of your suppliers on a one-to-one basis and create a plan that’s achievable and mutually beneficial to both parts.
Here’s how you should create your own supplier development program:
Step 1: Analyze your needs and your supplier’s shortcoming and select the right KPIs (for example, delivery time, defect rate, responsiveness, etc.) to track their progress. From here, develop a roadmap to further enhance the supplier.
Step 2: Rate the supplier using these KPIs and prioritize actions. Let’s say you need to choose between improving the price per unit and improving the delivery time. Improving the delivery time is more urgent because that can delay your entire supply chain.
Step 3: Develop a plan for addressing issues. This can mean regular face-to-face meetings, visiting the factory, training, implementing new processes, etc.
Step 4: Implement your supplier development plan. You know what needs to be fixed and how it can be fixed. Now it’s time to track the KPIs you’ve set at Step 1 and see whether the supplier’s metrics are improving.
Step 5: Move on to the next supplier and repeat this process.
Supplier development is an essential part of supplier management. Only by working together will you be able to improve communication, quality of products, delivery time, and overall supplier relationships.
Teaching, incentivizing, and rewarding your team for developing suppliers is of the utmost importance to your organization. You need strategic partners on your side - not just suppliers, and definitely not the lowest up-front cost suppliers.