What Is A Supplier Development Program And Why Do You Need One?
- Robert
- Sep 1, 2020
- 9 min read
Updated: 21 hours ago
Table of contents
Here's a quick video summary to help you out if you don't have time to read the whole article:
Here's something most procurement professionals won't tell you: the biggest gains in supply chain performance don't come from negotiating better contracts. They come from actually developing your suppliers.
You've run your supplier scorecards. Some suppliers scored well, others... not so much. Your first instinct might be to cut ties with the underperformers and find new partners. But here's a counterintuitive truth: before you end a long-term business relationship, you should first make sure you've done everything possible to save it.
This article walks you through everything you need to understand about supplier development programs. You'll learn what these programs really are, discover why they deliver results that traditional procurement can't match, and get practical steps for building your own program. We'll explore how to pick the right suppliers for development, share tested implementation strategies, and show you how modern technology makes the whole process manageable.
What is a supplier development program?
A supplier development program is your structured investment in making your suppliers better at what they do. More specifically, it's the process of working with suppliers whose scores are low, on a one-to-one basis, with the goal of improving their performance.
Traditional procurement operates on a simple premise: find suppliers, negotiate prices, monitor performance, switch when things go wrong. Supplier development flips this script entirely. Instead of jumping ship when performance dips, you roll up your sleeves and help fix the underlying issues.
Here's a real-world example that illustrates the concept perfectly. Let's say you have a supplier who provides excellent quality products, but these products always arrive late, delaying your entire supply chain. You have two options: stop doing business with that supplier, or collaborate with them to find a solution so products arrive on time. The second option is mutually beneficial and often delivers better long-term results than constantly switching suppliers.
At the end of the development process, you should have a detailed action plan with specific deadlines for implementing each change. This becomes your supplier development program.
The scope varies wildly depending on your needs. Maybe you're helping a manufacturer upgrade their equipment. Perhaps you're working with a service provider to streamline their processes. Sometimes it's about developing new capabilities together (like when automotive companies work with suppliers to develop electric vehicle components).
What makes these programs powerful isn't their complexity. It's their long-term orientation.
You're not looking for quick fixes. You're building capabilities that benefit both organizations for years. This approach challenges the conventional wisdom that supplier relationships should remain transactional. In specialized industries where switching costs are enormous and expertise is scarce, developing existing suppliers often delivers better results than constantly seeking new ones.
What are the advantages of a supplier development program?
A well-designed supplier development program ultimately leads to better overall supplier relationships and delivers benefits that extend far beyond the obvious cost savings. Let's examine what really happens when you invest in supplier development:
Full Transparency and Enhanced Communication
One of the most significant but often overlooked benefits is the full transparency between your organization and your suppliers that develops through these programs. When you're working closely on improvement initiatives, barriers come down. Suppliers share information they'd never reveal in traditional vendor relationships. This transparency creates a foundation for everything else that follows.
Improved Collaboration and Partnership
Supplier development naturally leads to improved collaboration between your organization and your suppliers. You're no longer just a customer making demands; you become a partner invested in mutual success.
This collaborative relationship often sparks innovation that wouldn't emerge through arm's-length transactions. When suppliers understand your strategic objectives and have the capabilities to contribute meaningfully, they become valuable sources of new ideas, technologies, and process improvements.
Streamlined Operations and Reduced Lead Times
Developed suppliers consistently deliver streamlined and reduced sourcing activities and lead times. When suppliers improve their internal processes, the benefits ripple through your entire supply chain.
We're talking about measurable changes: defect rates dropping by 40-60%, delivery performance hitting 98%+ reliability, and increased supplier responsiveness that makes your operations more agile.
Quality and Innovation Improvements
The programs deliver improved quality, manufacturability, and reliability for new designs, which can also serve as a driver for innovation. Suppliers who participate in development programs frequently outperform their peers across multiple metrics, not just the areas you specifically targeted.
Tesla's relationship with Panasonic on battery technology exemplifies this perfectly. What started as supplier development evolved into collaborative innovation that neither company could have achieved independently.
Enhanced Visibility and Customer Satisfaction
Development programs provide increased visibility of full supply base to procurement, quality, and even management departments. This visibility proves invaluable for strategic planning and risk management.
The end result? Increased customer satisfaction and enhanced end customer satisfaction as quality improvements and delivery reliability translate directly into better customer experiences.
Supply Chain Resilience Becomes Real
Developed suppliers weather disruptions better. Period. During the 2020-2022 supply chain chaos, companies with strong supplier development programs experienced 30-40% fewer disruptions than those relying on traditional procurement approaches. Why? Developed suppliers typically have stronger financial positions, more diversified supply bases, and better risk management practices.
Cost Optimization Through Efficiency (Not Just Price Cuts)
Yes, direct price reductions are nice. But sustainable cost advantages come from efficiency improvements throughout the supply chain. Developed suppliers achieve better economies of scale, implement lean practices, and optimize operations in ways that benefit everyone involved.
These efficiency gains typically provide 15-25% more cost reduction than negotiated price cuts alone. Plus, they're sustainable because they're based on genuine operational improvements rather than margin compression.
Increased Awareness of Supplier Diversity
Many programs also result in increased awareness of supplier diversity as you work more closely with different types of suppliers and understand their unique capabilities and challenges.
Supplier selection criteria for the supplier development program
Not every supplier deserves development investment. Strategic selection is absolutely critical because these programs require substantial time, resources, and commitment from both sides.
Since no two buying organizations, suppliers, or industries are alike, there's no one-size-fits-all approach. You need to work with each supplier on a one-to-one basis and create plans that are achievable and mutually beneficial.
● Strategic Importance and Spend Volume: Focus your efforts where they'll have the biggest impact. The Pareto principle applies here: roughly 20% of your suppliers likely account for 80% of your spend or risk exposure. These high-impact relationships deserve development investment.
But don't ignore smaller suppliers who provide critical components or services. Sometimes a small supplier's failure can shut down your entire operation.
● Performance Gaps with Clear Improvement Potential: Look for suppliers with obvious performance gaps but demonstrated capability and willingness to improve. A supplier performing at 90% might offer limited development upside. One struggling at 60% but showing genuine commitment to improvement could yield dramatic gains. Some suppliers talk about improvement but lack the organizational commitment to make it happen.
● Financial Stability and Business Viability: Developing a supplier who might not survive economically makes no sense. Evaluate their financial health carefully. Look at cash flow, debt levels, market position, and long-term business prospects.
You want partners who'll be around to deliver on the improvements you help them achieve. There's nothing worse than investing months in developing a supplier only to watch them go out of business.
● Cultural Alignment and Collaboration Willingness: Supplier development requires open communication, shared goal-setting, and mutual investment. Suppliers who are secretive about their operations, resistant to change, or focused solely on short-term gains aren't good candidates.
Look for organizations that share similar values and demonstrate genuine interest in long-term partnerships. Cultural misalignment kills more development programs than technical challenges do.
● Technical Capabilities and Learning Capacity: Assess whether the supplier has the foundational capabilities needed for improvement. This includes technical infrastructure, skilled workforce, management commitment, and organizational learning capacity.
Suppliers with strong technical foundations but process weaknesses often make excellent development candidates. They have the building blocks for improvement; they just need help putting them together effectively.
● Geographic and Logistical Considerations: Practical factors matter. Suppliers located far from your operations might be harder to develop effectively due to communication challenges and travel costs. Consider whether you have the resources to support development activities across different time zones and cultural contexts.
Remote development isn't impossible, but it requires different approaches and typically takes longer to achieve results.
● Market Position and Competitive Dynamics: Evaluate the supplier's position within their market. Suppliers with strong market positions but operational weaknesses might be worth developing. Those facing severe competitive pressures might struggle to invest in improvements even with your support.
Understanding their competitive environment helps you design development programs that strengthen their market position while benefiting your relationship.
How do you come up with a supplier development program?
Creating an effective program requires systematic planning and disciplined execution. Here's the step-by-step approach that actually works in practice:
Step 1: Analyze Needs and Select the Right KPIs
Analyze your needs and your supplier's shortcomings and select the right KPIs to track their progress. Common metrics include delivery time, defect rate, responsiveness, cost per unit, and quality scores.
From here, develop a roadmap to further enhance the supplier. Don't try to fix everything at once. Focus on the metrics that will have the biggest impact on your operations.
Step 2: Rate and Prioritize Actions
Rate the supplier using these KPIs and prioritize actions. Let's say you need to choose between improving the price per unit and improving delivery time. Improving delivery time might be more urgent because delays can impact your entire supply chain.
This prioritization ensures you tackle the most critical issues first while building momentum for broader improvements.
Step 3: Develop a Plan for Addressing Issues
Develop a plan for addressing issues. This can mean regular face-to-face meetings, visiting the factory, providing training, implementing new processes, or sharing best practices.
The plan should include specific milestones, resource commitments from both organizations, timelines, and success metrics. Don't underestimate the importance of detailed project planning. More supplier development initiatives fail due to poor planning than due to a lack of capability or commitment.
Step 4: Implement Your Supplier Development Plan
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 set in Step 1 and monitor whether the supplier's metrics are improving.
Establish governance and communication structures with regular review meetings, communication protocols, and escalation procedures. Clear governance prevents initiatives from losing momentum or drifting off course.
Step 5: Move to the Next Supplier and Repeat
Move on to the next supplier and repeat this process. Start with pilot programs rather than trying to transform your entire supplier base simultaneously. This allows you to refine your approach, build internal expertise, and demonstrate value before scaling more broadly.
Additional Implementation Considerations
Allocate dedicated resources from your organization. This might include technical experts, project managers, and financial investments. Make sure your team has the skills needed to support suppliers effectively.
Monitor progress continuously and adapt your strategies based on what you learn. The most successful programs evolve based on experience and changing business needs.
Best Practices for Implementing Supplier Development
These proven practices separate successful programs from those that struggle to deliver results:
● The most effective programs secure strong executive sponsorship and engage multiple functions, including engineering, quality, finance, and operations. Teaching, incentivizing, and rewarding teams for developing suppliers represents a critical organizational priority.
● Clearly communicate expectations, timelines, and success definitions to all stakeholders. Articulate your organization's investment commitment and specify expected supplier contributions.
● Organizations need strategic partners, not merely suppliers, and certainly not just the lowest up-front cost providers. Seek opportunities where operational enhancements reduce costs for both organizations or create new market opportunities for suppliers.
● Effective supplier development requires substantial time investment. Suppliers who benefit most from development programs often require fundamental operational improvements that demand sustained effort over months or years.
● Provide implementation guidance through best practice sharing, technical training provision, or temporarily placing experts at supplier facilities. Regular executive meetings, facility visits, training programs, and process implementation support represent valuable knowledge transfer tactics.
● Modern procurement technology platforms enhance program efficiency and effectiveness through performance monitoring tools, communication systems, and collaborative project management capabilities.
● Regularly measure progress against established metrics and celebrate achievements. Recognition motivates continued improvement efforts and demonstrates program value to stakeholders.
● Focus on building sustainable capabilities rather than merely solving immediate problems. This creates lasting value for both organizations.
How can Prokuria support supplier development?
Modern supplier development programs require sophisticated technological infrastructure to manage complexity and track progress effectively. Prokuria's procurement software platform provides the comprehensive foundation that makes supplier development both manageable and measurable.
Prokuria consolidates all supplier data and performance metrics in a unified platform, providing complete visibility into capabilities and development progress. The platform automates data collection and analysis, enabling organizations to identify successful patterns and demonstrate program ROI through clear metrics. Collaboration features enable seamless project management, document sharing, and communication between teams and suppliers, ensuring development initiatives maintain momentum and alignment.
The platform's risk management capabilities identify suppliers who might benefit from development support before issues become critical, while standardized assessment tools simplify the evaluation process for identifying development opportunities.
Whether launching initial programs or enhancing existing initiatives, Prokuria provides the tools needed to build stronger supplier relationships and maximize the return on your supplier development investments.