Spend Matters welcomes back Sherry Gordon, our resident supplier performance and supplier management expert.
Companies focus on supplier management with the assumption that many suppliers need to improve their performance. For firms who depend heavily on suppliers for goods and services, it's a fair assumption. Increasingly, companies are adopting supplier relationship management and supplier performance management systems to better understand supplier performance and improve customer-supplier relationships for mutual benefit -- to reduce costs and risks, and to capture more value.
When I was running the New England Suppliers Institute, a non-profit organization partially funded by Air Force ManTech through the TRP (Technology Reinvestment Program), and getting it off the ground, its original mission was to improve the competencies of the supply base in New England. The assumption was that by strengthening the supply base and helping it become more cost-effective, manufacturers would then have more local suppliers to choose from and thus help strengthen the shrinking manufacturing base and the New England economy.
But we ran into a snag. The customer companies also needed to improve their competencies as customers in order to get better performance out of their suppliers. We found rampant poor practices: customers issuing less than lead-time orders and then complaining about late orders; poor communication about the simplest of problems (or no knowledge of whom to contact at the customer to resolve problems); items that sat on the customer's dock for days waiting to be accepted, while at the same time the supplier would be dinged for late deliveries; long accounts payable cycles that threatened to put suppliers out of business (and actually did) -- the list goes on.
Then, one day one of our board members remarked, "It's the customer, stupid." When our customer company's board members were asked what percent of supplier performance problems were attributable to customer issues, they all agreed without hesitation that the number was more than fifty percent. The supplier board members greeted this pronouncement with a few cheers.
For suppliers to succeed, we realized that change had to occur on both sides of the customer-supplier equation and that it was not just a matter of getting suppliers to do a better job. Out of this realization we developed the Supply Base Management Improvement Process, designed to evaluate and guide the improvement of customer competencies in supply management. Also, I wrote an e-book on the subject, Improving Company Performance Through Supply Chain Management Practices. And, we modified the mission of the New England Supplier Institute to include "improving business relationships between customers and suppliers" rather than focusing solely on supplier development and improving supplier operations. Today, some customer firms use reverse scorecards to get feedback from suppliers on their performance.
Not all suppliers feel that they need to be "managed" by their customers, particularly ones who create problems and inefficiencies. I knew some very competent suppliers who wanted to expose their customers to some of their best practices. In fact, one lean machining job shop used to run customer training to try to persuade its customers to send them smaller, more frequent orders to prevent shop floor bottlenecks. Another would give customers a discount for submitting smaller, more frequent orders. It was clear that supplier performance could not reach its potential without changes on the customer side of the equation.