Features

Supplier Visits — Can You Afford Not to Go?

Author(s):

Linda Michels, CPSM, CPSD, C.P.M.
Linda Michels, CPSM, CPSD, C.P.M., is vice president, corporate learning systems for ADR North America, an ISM services company in Tempe, Arizona.

January 2013, Inside Supply Management^® Vol. 24, No. 1, page 30

Careful planning and execution make supplier visits a valuable tool, even as supply management organizations tighten their belts.

Managing supplier relationships in these turbulent times is a challenge for many businesses. On one hand, supply management professionals are responsible for managing risks, containing costs and nurturing innovation from the supply base. On the other hand, budgets are tight, staffing is lean and travel is limited. Visits to suppliers may be seen as a discretionary expenditure, yet nothing could be further from the truth. When carefully planned and executed, supplier visits create opportunities to collect valuable information — and information is power.

Determining Who to Visit

Like any business activity, supplier visits should be prioritized based on their expected impact. One way to assess which suppliers to visit is by using a simple portfolio analysis in which each item of spend is placed on an X-Y graph (see figure 1 above). The placement of each item depends on two factors:

1. X-axis — The quantity of the overall spend for that item
2. Y-axis — The difficulty of sourcing the material, part or service. The difficulty can be due to internal limitations such as tight specifications, external limitations such as patents, or if there is a single supplier for that particular part or service.

Suppliers will fall into one of four main categories: acquisition, critical, strategic and leverage (see figure 2 below). The approach to each and the reasons to visit will vary accordingly. Suppliers in the acquisition category rarely require visits. Visits to leverage-quadrant suppliers often concentrate on discovering a supplier's costs and assessing the efficiency, quality and reliability of the company. A visit to a critical supplier should result in better strategies for mitigating risks, while a visit to a strategic supplier should cover a broad range of topics, from risk, to cost-containment collaboration, to nurturing innovations in products or processes.

Whatever the reason, a supplier visit is a perfect opportunity to gather unfiltered information. It also gives supply management professionals the opportunity to communicate their organization's corporate values and expectations to the supplier. Who you visit, what you ask and say, and how you conduct meetings all send strong signals to the supplier about your company and its standards.

Preparing for the Visit

The supply management organization should prepare for the supplier visit by collaborating on specific pre-meeting tasks. While these examples focus on manufacturing suppliers, the principles apply to the nonmanufacturing industry sector, as well, although the specific topics will vary.

Identify priorities. Supply managers first should identify the compelling objectives for a supplier visit and then prioritize those objectives. Objectives can include:

• Determining a supplier's costs
• Assessing its long-term stability or reliability
• Reviewing the viability of its business, sustainability or risk management plans
• Determining whether it can bring innovations or cost breakthroughs to your organization.

Decide what information you need to accomplish each of the objectives, with whom you will meet and how you will approach the meeting to collect the needed information. For example, to estimate a supplier's costs, it is useful to know how many people work at a plant and about how many employees are working on your account. Other good indicators of costs are the kind of equipment the supplier uses, its original cost and current age, the overall size of a plant and a list of the supplier's key suppliers. Gathering such information will likely require a visit to production areas and meetings with the operations, financial and supply management staff.

If the nature of the component or service you purchase is complex, consider bringing experts from your company's engineering or operations departments. However, including too many people complicates the logistics and expense, so try to represent all your stakeholders with the fewest number of people.

Create a timed agenda. Make a list of everyone you want to speak with, in all departments, and what specific information and materials you will need. Create a schedule-format agenda and confirm it with the supplier. The time you commit to a task on the agenda communicates its importance.

Allow time for formalities. Formal introductions at the start of the visit, shared working meals and structured wrap-up sessions communicate the importance you place on the visit and your expectations for cooperation and transparency.

Generate forms. Creating forms and checklists for the various meetings helps focus interactions on priorities and standardizes the information collected. The form or checklist for production might include questions about equipment, factory size, employees, ISO or other certifications, scrap rates, and plant capacity used and unused at the time of the visit. A form for engineering or design might include data about the scale of R&D, patents and testing facilities. The business/financial form might include detailed financial statements, ownership information and tenure of current management. All forms should include names, titles and contact information for supplier employees interviewed. Send the forms and/or information requests in advance to allow the supplier to prepare.

Conducting the Visit

Taking the necessary steps to prepare for the visit increases your chances of success. However, there also are important rules to follow during the visit.

Keep to the agenda. Collect the information you've requested in advance, and make best use of the meeting time to clarify or ask follow-up questions. If you realize a section of the agenda will run longer than anticipated, it's often best to stop before the end of the scheduled time and decide by consensus how to continue the interaction after the visit. As a group, you may decide to continue the current discussion and/or to shelve certain parts of the agenda for another time. In general, follow the agenda; otherwise you risk shortchanging the time you have scheduled to discuss additional issues.

Establish expectations. Every aspect of the visit — from the request to the way you conduct the visit — demonstrates to the supplier what to expect from your organization. Use this opportunity to set high expectations and standards by making your requests for access to people, information or facilities as specific as possible and by communicating clearly why you are making each request. A detailed and well-planned agenda sends a clear message that your organization is professional and takes these visits seriously. Starting communications well in advance gives both organizations time to prepare and meet high expectations. Recognize that a smart supplier will set expectations for you and your company. For example, they may have proprietary processes they want to protect or financial data they are unwilling to share. As a result, you can expect some give-and-take during the preparations for a visit.

Set the stage for the next steps. Before wrapping up the visit, you should obtain agreement on the key initiatives and joint programs both organizations plan to work on in the coming months, along with a time line for completion of these projects. Decide on the process and the key team members who will participate in the collaboration. For example, a visit might reveal the supplier could lower its costs and price if there was a slight change in your product specifications that would not affect quality. Engineering and manufacturing representatives from your company and the supplier company could be assigned to investigate the issue and report back to supply management.

Manage surprises. Every visit will have surprises. Suppliers will be either unable or unwilling to provide direct answers to every one of your questions. A team member from your organization or the supplier's may have to miss the meeting because of an emergency. Travel contingencies could shorten some sessions, while a wealth of information will lengthen others. Keep your priorities in mind as you react to these surprises. You may find you have to adapt your requests or juggle the schedule on the fly. Don't focus solely on leaving with everything you wanted, but rather on finishing with what you really need (or an agreed-upon plan to get it as a follow-up task).

Conduct a Debriefing

Once you are back in the office, gather your team for a debriefing. Collect and compare overall impressions; these are very important, and often will help you interpret the data you've gathered. The sooner the team shares its impressions and findings, the better — especially if a team member noticed a "red flag" that might indicate an imminent supply disruption or other risk.

Summarize results by identifying gains the organization has made with the supplier and examining the relationship between the two companies. Report the next steps that should be taken to achieve the objectives set for this supplier, sharing those findings with all departments or functional areas that may be affected by them. For many strategic or critical suppliers, the supply management organization's assessments may be important to design teams, R&D, marketing, finance and production. This is especially true if you plan to replace a supplier or significantly change your relationship.

Even though budgets may be tight, supplier visits are still an integral part of an organization's supply management and partnership strategy. In tough economic times, suppliers sometimes cut corners and bypass key processes. By auditing key suppliers, supply management professionals can be assured that supplier expectations are being met. It is also a great opportunity to collect data for a cost analysis and to work closely on areas that may provide true cost savings, not just supplier margin reductions. Supplier visits are essential for building relationships that will bring cost and value improvement, either through innovation or as a preferred customer.

For more information, send an e-mail to author@ism.ws.

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