Supplier Development: Expectations vs. Results

Author(s):

Daniel R. Krause
Daniel R. Krause, Arizona State University, Tempe, AZ 85287-4706, 602/965-6044.

80th Annual International Conference Proceedings - 1995 - Anaheim, California

ABSTRACT.
This paper presents results of a survey on supplier development. Surveys were mailed to a random sample of 1,504 NAPM members. The sample was split into two groups on the basis of how respondents judged the results of their supplier development effort, either exceeding or falling short of expectations. The responses of these two groups to questions regarding the type of supplier development activities engaged in and their perceptions of their firm's communication efforts with its supplier are presented and discussed.

INTRODUCTION.
One of the purchasing function's basic objectives is to maintain a network of capable suppliers. As today's firms focus on their core competencies, they become more dependent upon suppliers' efforts to meet ever-increasing competition. To compete in their respective markets, buying firms must ensure that their suppliers' performance, capability and responsiveness be equal to, or surpass that experienced by their competitors. Thus, many buying firms actively facilitate supplier performance and capability improvements through supplier development.

What is Supplier Development? For the purpose of this study, supplier development is defined as: any effort by a buying firm with a supplier to increase the performance and/or capabilities of a supplier and to meet the buying firm's short and/or long term supply needs. Supplier development activities may range from limited buying firm efforts, and thus may include informal supplier evaluation and a request for improved performance, to extensive efforts that may include activities such as training of the supplier's personnel and, perhaps, investment in the supplier's operations.

This paper reports the results of a mail survey to a large sample of purchasing executives. The first section describes the study and provides demographic information. The next section describes how the sample was split into two groups on the basis of how respondents judged the results of their supplier development effort, either exceeding or falling short of expectations. Finally, responses of these two groups to questions regarding the type of supplier development activities engaged in and their perceptions of their firms' communication efforts with their suppliers are presented and discussed.

THE STUDY.
A seven page questionnaire was mailed to a randomsample of 1,504 members of the National Association of Purchasing Management (NAPM). The survey solicited perceptions from high-level purchasing executives regarding a single instance of supplier development performed by their firm. It also gathered responses regarding the extent to which a number of supplier development activities were used, asked for perceptions about the outcomes of the supplier development effort, and gathered demographic information.

RESPONDENTS.
Fifty-two percent of the respondents held titles of Director of Purchasing, fourteen percent were Purchasing Managers, thirteen percent were V.P.'s of Purchasing, seven percent were V.P.'s of Materials Management and the rest held other miscellaneous titles including Senior Buyer. Respondents had held positions with their company an average of 12-1/2 years. Approximately sixty-nine percent of the respondent firms reported gross annual sales of $100 million and over.

Respondents held positions in companies from a variety of industries in both manufacturing and non-manufacturing. Electrical/electronic equipment, miscellaneous manufacturing, chemicals, fabricated metals, health service and food industries were most widely represented in the respondent group. Respondents' firms had an average ratio of total purchase dollars to total sales dollars of 40.5 percent. In addition they indicated that they had decreased the number of active suppliers in their supply base by an average 8 percent over the past five years.

Respondents were provided the definition of supplier development introduced earlier and asked to focus their responses on "any" single supplier with which their firm had made "any effort," from limited to extensive, to increase its performance or capabilities. The respondents' firms had been purchasing items from these single suppliers for a period ranging from six months to 160 years, with a mean of 11.65 years and a median of eight years. In addition, the respondents estimated that they purchased an average 25.9 percent of the supplier's output of the item they were reporting on. The majority of responses involved suppliers of an item that was both part of the buying firm's final product and considered an "A" item in terms of importance.

The sample descriptions just provided suggest that the respondents focused their replies on a supplier with which they had an ongoing relationship and that supplied their firm with a fairly important item. This is not surprising, given that the supplier development effort is potentially costly to the firm and thus the effort should be concentrated where it will provide the greatest benefit.

SPLITTING THE SAMPLE.
For this paper, the respondent group of 527 was split into two groups according to their responses to the question in Table 1: "Overall, how would you characterize the result of your company's supplier development effort with this supplier?" The sample was split at the median, which was "2," in order to achieve two groups that were roughly equal in sample size. Thus, splitting the sample into two groups at the median resulted in approximately 295 respondents who characterized the results of their company's supplier development efforts as exceeding or greatly exceeding their expectations, and a group of approximately 225 who characterized the results of their supplier development efforts as neutral or falling short of their expectations. For the remainder of this paper the two groups will be referred to as "exceeded" and "fallen short" in reference to their perceived result of their supplier development experience.

SUPPLIER DEVELOPMENT ACTIVITIES.
Respondents were asked to indicate the extent to which their firm had engaged in the various supplier development activities listed in Table 2. This list of items was generated as a result of a review of the literature and discussions with people in industry and academia. The list, from a. to n., roughly follows a continuum of limited-to-extensive buying firm involvement in an effort to increase the supplier's performance and/or capabilities.

Table 1
Overall, how would you characterize the result of your company's supplier development effort with this supplier?

5-point Likert scale

It has greatly exceeded our expectations
It has fallen far short of our expectations
1--2--3--4--5

The two columns on the right in Table 2 list the mean responses of the "exceeded" and "fallen short" groups. Asterisked items indicate the degree to which the "fallen short" group's response differs statistically from the "greatly exceeded" group's response. Note that no statistically significant differences exist between the groups of respondents until item "d".

Items d., e., f., j., k., l., m., and n. all show statistically significant different responses between the two groups. These items include formal evaluation, feedback of evaluation results, use of a supplier certification program, site visits to the supplier, visits to the buying firm by supplier's representatives, supplier recognition, training and education of the supplier's personnel, and investment in the supplier's operation by the buying firm. Collectively, this group of items represents a fairly significant effort on the part of the buying firm to interact with the supplier. Further, the group of items represents a willingness to cooperate with, and invest time and resources in the supplier to increase its performance. The results of this analysis suggest that firms must be willing to put forth a sincere effort to increase their supplier's performance if the results of supplier development are to be satisfactory.

In response to the survey question: "Does your company regularly evaluate suppliers?", approximately 68% (358) of all of the survey respondents (527) indicated yes. Yet, only 209 of the 358 respondents who indicated that they did evaluate suppliers, indicated that their evaluation was a formal one and thus used established guidelines and procedures to accomplish the evaluation. Establishing measures of supplier performance and communicating the results of these measurements to suppliers would seem to be the minimum acceptable effort for companies that desire to achieve higher performance levels from their supply bases. In addition, performance measurement should be a prerequisite to more extensive supplier development activities undertaken by the buying firm, such as supplier recognition and training of suppliers' personnel. Measurement of supplier performance through evaluation can provide a benchmark by which to evaluate the effectiveness of other supplier development activities undertaken by the buying firm.

Table 2
Respondents indicated the extent to which their firm engaged in the following activi- ties to increase the performance or capa- bilities of the single supplier they fo- cused their responses on.

Where:

  • 1 = Always,
  • 2 = Often,
  • 3 = Sometimes,
  • 4 = Seldom, and
  • 5 = Never.

"Exceeded" "Fallen Our Expecta- Short" of Our tions Expectations Group Group

a. Use of 2 or 3 suppliers for this purchased item to create competition among suppliers. 2.84 2.93

b. Use of 4 or more suppliers for this purchased item to create competition among suppliers. 4.29 4.38

c. Assessment of supplier's performance through informal evaluation, which takes place on an ad-hoc basis with no set procedures. 2.98 2.79

d. Assessment of supplier's performance through formal evaluation, using established guidelines and procedures. 2.52 3.17***

e. Providing supplier with feedback about the results of its evaluation. 1.84 2.25***

f. Use of a supplier certification program to certify supplier's quality, thus mak- ing incoming inspection unnecessary. 3.03 3.99***

g. Verbal or written request that the supplier improve its performance. 2.60 2.72

h. Promise of current benefits such as a higher volume order of the present item. 3.04 3.22

i. Promise of future benefits such as consideration for future business. 2.69 2.75

j. Site visits by your firm to supplier's premises to help supplier improve its performance. 2.41 2.88***

k. Inviting supplier's personnel to your site to increase their awareness of how their product is used. 2.12 2.41***

l. Recognition of supplier's achievements /performance in the form of awards. 3.44 4.14***

m. Training / education of the supplier's personnel. 3.58 4.05***

n. Investment in the supplier's operation. 4.57 4.77**

** = p < .01; *** = p < 0.001

Table 3

Please characterize your communication effort with this supplier.

Where:

  • 1 = Strongly agree ,
  • 2 = Agree,
  • 3 = Neutral,
  • 4 = Disagree and
  • 5 = Strongly disagree.

"Exceeded" "Fallen our Expecta- Short" of our tions Expectatons Group Group n=295 n=223

a. In this relationship, it is ex- pected that any information that might help the supplier will be provided to them. 1.45 1.69***

b. Exchange of information in this relationship takes place frequent- ly and informally and not only according to a pre-specified agreement. 1.58 1.90***

c. It is expected that the parties will provide proprietary inform- ation if it can help the other party. 2.06 2.44***

d. It is expected that we will keep each other informed about events or changes that affect the other party. 1.46 1.80***

e. The communication effort between this supplier and our firm in- volves many interfirm contacts. 1.97 2.41***

f. Exchange of information in this relationship takes place in a timely manner. 1.71 2.24***

*** = p < 0.001

BUYER-SUPPLIER COMMUNICATION. Table 3 presents the responses of the two groups to questions about their buying firm's communication effort with the single supplier they focused their responses on. The questions ask about the willingness of the buying firm to share information, even proprietary information, if it could help the supplier. Other questions in Table 3 ask information regarding the timeliness of interfirm communication, the number of buyer-supplier contacts, and the frequency of communication between the two firms. The means for all six questions are statistically significant between the "exceeded" and "fallen short" groups at a p-value < 0.001.

The t-tests in Table 3 indicate that the group of respondents who felt that their supplier development results "exceeded" their expectations agreed more strongly with the statements in Table 3 than the group of respondents who regarded the results of their supplier development effort as neutral or as having "fallen short" of expectations.

SUMMARY AND CONCLUSION.
This paper looked briefly at two groups of firms involved in efforts to increase their suppliers' performance. The "exceeded" group reported that its supplier development efforts had exceeded expectations; the "fallen short" group reported a dissatisfaction with the results of its supplier development effort. Table 2 lists the activities each group engaged in to increase the performance of their suppliers. The "exceeded" group reported significantly higher involvement than the "fallen short" group, in supplier development activities such as formal evaluation, feedback of evaluation results to the supplier, use of a supplier certification program, site visits to the supplier, visits to the buying firm by the supplier's representatives, supplier recognition, training and education of the supplier's personnel, and investment in the supplier's operation. The "exceeded" group also expressed significantly higher levels of agreement with statements that characterized their communication effort with their supplier.

The trade literature reports that buying firms believe suppliers are generally weak in the areas of quality, reducing costs, delivery, getting new technology into products, financial health and handling design changes (1). The results of Table 2 suggest that buying firms are generally proactive in attempting to correct suppliers' deficiencies. However, the firms that appear to be more satisfied with the results of their supplier development efforts also report a greater effort to help suppliers improve their performance and capabilities and report a higher level of effort to facilitate effective communication with their suppliers.

Leenders and Blenkhorn (1988) suggest that suppliers are often only as good as they have to be and that buying firms often deserve what they get from suppliers because they have not asked for more (2). Only by expecting more from suppliers, communicating those expectations, and being willing to participate in the effort to improve suppliers' performance and capabilities can the buying firm hope to significantly raise the overall level of supply base performance.

REFERENCES

  1. Morgan, James. "Supplier Programs Take Time to Become World Class," Purchasing, 19 August 1993, 61, 63.
  2. Leenders, Michiel R., and David L. Blenkhorn. Reverse Marketing: The New Buyer-Supplier Relationship. New York: The Free Press, 1988.

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