Vendor-Benders: How To Assure That Your Supplier Relationships Are Collision Proof
Jim Limperis, C.P.M. CFPIM
Jim Limperis, C.P.M. CFPIM, Strategic Sourcing Manager, Motorola ISG, Mansfield, MA 02048-1193, 508/261-4438.
82nd Annual International Conference Proceedings - 1997
Supplier relationships are laden with vendor(fender)-benders, traffic lights and potholes. There will be times when the relationship is under construction. The alliance must, at times, bump along the breakdown lane as both partners assess their respective needs. The challenge is to keep it in the fast lane as much as possible. In order to assure that your supplier relationships are collision-proof, you must be prepared to weather the aforementioned obstacles. Each one will permeate a supplier relationship to some degree. Let's take a look at how each of these obstacles can impact a supplier relationship:
Vendor-Benders. In order to minimize the frequency of vendor-benders, a supplier optimization plan must be developed. During the last several years at Motorola ISG, the active supplier base has been reduced by over 50%. With the amount of "traffic" reduced due to "less cars on the road," a closer relationship will develop with those remaining suppliers.
Once the supplier base has been reduced to an optimal level, unexpected vendor-benders can be minimized by careful attention to Early Supplier Involvement through joint product development. Our suppliers are in the "driver's seat" when it comes to knowing what's around the bend in their industry. We need to "share the road" with our suppliers regarding early supplier involvement in order to successfully develop the highest quality products and services.
Even though you've optimized the supplier base and implemented a successful ESI program, vendor-benders can still occur if buyer and supplier have different priorities on Supply Management initiatives. For example, one of the initiatives is to deploy an Electronic Funds Transfer (EFT) program with our supplier base. We will concentrate on implementing EFT with approximately 150 of our suppliers who constitute over 95% of our procurement activity. From the buyer's perspective, accounts payable can eliminate writing checks as EFT will electronically deposit funds in the supplier's designated account on the terms agreed to in the contract. By doing so, the costly expense of writing checks and mailing them is no longer necessary. From the supplier's vantage point, they receive their funds automatically, eliminating the need for mailing invoices. They also know that they will consistently receive their funds on the exact terms negotiated.
Most vendor-benders can be repaired! The key is to maintain flexibility. If you have successfully developed a highly responsive supplier base which reflects the flexibility demanded by your customer, then it is mutually advantageous to jointly repair the vendor-bender and "get back on the road."
Under Construction. There will be times when your Supply Management organization, and thus, your supplier relationships, will be under construction, i.e. undergoing change due to organizational, long-term strategy or short-term tactical procurement changes. If your organization is not constantly under construction, then you are not managing change with the "velocity" necessary to satisfy the demands of tomorrow's customer!
If your organization routinely conducts benchmarking studies on various facets of Supply Management initiatives, then the best time to act on findings from these studies is when your organization is "under construction." For example, when we were "under construction" due to short-term tactical procurement changes, we were reviewing how best to unveil our barcoding requirements with our supply base. Since we had recently completed a benchmarking effort with other Motorola sites and outside companies (regarding their implementation efforts) and the government (regarding the barcoding spec), we were in position to proactively launch our barcoding initiative so as to minimize the idle time while under construction.
When your organization is under construction due to the initiation of a new product or service requiring sourcing needs, a comprehensive assessment tool to evaluate the processes and quality systems of prospective suppliers can curtail the amount of time you are under construction. Motorola utilizes its Quality System Review (QSR) to perform this assessment. You can develop your own audit tool as long as it is utilized consistently and your sourcing professionals have been trained to perform this auditing function. The audit should examine objective evidence that quality systems have been developed, documented and implemented. The intent is to assure that the quality systems of suppliers are effective in achieving Total Customer Satisfaction and that continuous improvement is achieved. Your local ASQC chapter can offer you guidance in recommending appropriate quality audit techniques.
Another means to assure that your suppliers do not idle long while you're under construction is continuous training. If you are in a constant mode of change to maintain flexibility to satisfy increasingly demanding customers, training your suppliers is critical. we offer onsite training for both suppliers and customers via Motorola University to assure that both partners in the total Market Supply chain understand the same nuances in our field and are utilizing similar techniques to reduce cycle time, improve quality, and embark on continuous improvement programs.
Traffic Lights. Traffic lights may appear to be a deterrent between going from Point A to Point B but traffic lights in a supplier relationship offer excellent opportunities to assess "where we're at." We conduct supplier reviews on a regularly scheduled basis to review the prior period's quality and delivery performances as well as the numerous initiatives that we are jointly working on as supplier partners. We utilize a Supplier Corrective Action (SCA) procedure to assure that suppliers are moving in the right direction. If there are concerns such as delays in supplier response time or less-than-expected performance over the last period of time, advance with caution through the yellow light once these issues are brought to "light." If there are major concerns with the relationship for a variety of reasons, then the red traffic light signal offers you the opportunity to carefully assess the future nature of the relationship. If corrective actions can turn the situation around, now is the time to "drive" the point forward.
The traffic light can also be a "reflector" of sorts. At each of these milestones or whatever checkpoints suit your relationships, it is wise to reflect on what each party has done well or not so well so that history does not repeat itself. You may learn that difficulties are often encountered at certain stages of the product life cycle (i.e., the concept stage, the development stage, the production stage, the sunset stage, etc.) regardless of which supplier or which product line is utilized. Likewise, you may also learn that certain stages go quite well. It would be wise to capture or ultimately procedurize, if applicable, the processes followed for future sourcing opportunities.
Activity Based Management practices can also be checked at traffic lights. We have attempted to identify cost drivers through non-value added activities associated with suppliers and their components/products. We have allocated the appropriate overhead in the Supply Management organization based on a component rating procedure methodology. For example, if a supplier adopts and implements programs to eliminate waste (such as Electronic Data Interchange, Barcoding, Electronic Funds Transfer, utilizing standard componentry vs. customer parts, lead-time reduction achievements, etc.), the suppliers' components are allocated minimal overhead to reward the supplier for their efforts to reduce the cost drivers in the process.
Fast Lane. If you're cruising in the fast lane with your supplier, you had better have a good roadmap to deal with the many curves in the road. we have developed a comprehensive, multi-year Supply Management roadmap. The primary objective of this roadmap is to develop a highly responsive supplier base to effectively and efficiently meet or exceed the quality, delivery, flexibility, compliance, cost and inventory turn requirements of the Model Manufacturing Operation to meet customer needs. Several roadmap initiatives are being driven by Supply Management individuals leading cross-functional teams. These initiatives support the aforementioned metrics derived from customer needs. For example, to meet our aggressive flexibility metric, several teaming efforts were deployed to achieve these results including teams to address EDI, cycle time reduction, supplier optimization, flexibility, cost reduction, etc.
In order to stay in the fast lane, you need good "visibility." While the roadmap provides you long-term guidance to help you arrive at your destination point, good visibility helps you see the road ahead. Suppliers were eager to work with Supply Management to reduce lead-times to support the flexibility metric provided we send them weekly forecasts. Historically, our forecasts have been 70% accurate which is a bit of an oxymoron. However, this was acceptable to our suppliers since they were mainly interested in the overall consistency of the forecast vs. the specific accuracy.
Feedback is essential to assure that you stay in the fast lane. many trucking firms display a message in the rear of their trucks requesting feedback on the quality of the driver's capabilities. Motorola also solicits feedback through several means. Motorola hosts symposiums whereby suppliers exhibit products and present technical dissertations on future technology. Many Motorola divisions submit questionnaires to suppliers seeking feedback on several characteristics such as degree of early supplier involvement, negotiation ethics, schedule stability, commitment to partnership, etc.
Potholes. Every spring brings a new round of potholes from the harsh winter season. Supplier relationships will have to weather storms and potholes that will develop even in the best of relationships. The strength of the relationship is based, to an extent, on how well you steer and veer clear of these potholes. As well, proper maintenance will minimize the magnitude of these potholes. For example, problems will intensify if poorly managed. However, if there is a pending list of formal requests for supplier corrective actions or detailed action items from ongoing supplier review sessions, or, at the minimum, open dialogue between functional disciplines in both companies, the road can be restored so there will be less time veering and more time "fifth-gearing."
Another signal that potholes are not being repaired is when priorities change by either party. This can be a subtle signal as time to market continues to decrease and the buyer's priorities change from one product launch to the next. Likewise, a supplier's priorities also are closely aligned with customer needs and their mix of customer requirements can suddenly shift.
If the relationship is sound, it will rise above changing priorities of product launch offerings. However, proper attention must be spent on the relationship even if the product or service which the supplier supports has cooled in significance. Priorities will change again and the supplier's expertise will once again be in the spotlight. It is much easier to maintain the relationship on an ongoing basis rather than filling potholes in order to proceed forward.
Breakdown Lane. Just as you would want to have a back-up plan should you find your vehicle in the breakdown lane (spare tire, cellular telephone, AAA, etc.), the same holds true in a supplier relationship. Despite best intentions, we need to assure that the end-customer is insulated from any shortfall in the relationship between buyer and supplier. One way to do so is to agree up front in the sourcing/contract negotiating stage to a data escrow arrangement. The supplier would agree to place in escrow specific documents and specifications (for hardware products) and source code (for software products) and assure that the latest revisions or releases of the above are updated in the escrow file. The intent is that should the supplier no longer be a viable supplier in the future (liquidation, bankruptcy) or its charter change so that the product is no longer available (merger/buyout), the buyer can transfer the contents of the escrow file to a qualified third-party subcontractor so that the flow of products or services to the end-customer can continue.
Another prudent up-front sourcing discipline is to draft a Business Interruption Plan. The Business Interruption Plan should identify potential alternate sources whenever a sole source is selected. Depending on the scope of the product or service, several factors should be reviewed including strategic importance of the product, technological capabilities, non-recurring engineering costs, homologation issues, regulatory approvals, product life cycle, compatibility issues, etc.
If an "overhaul" is warranted to move the relationship out of the breakdown lane, then the proper steps should be taken to do so. If the relationship is "totaled," then it -is time to exercise the data escrow file and develop a qualified sub-contractor to maintain the flow of products/services and deploy the Business Interruption Plan.
In conclusion, the time spent up front to explain our Supply Management Roadmap and supplier expectations to potential new suppliers is a solid investment in the ultimate length and strength of the supplier relationship. By doing so, we avoid a lot of unnecessary vendor-benders down the road!