Strategies for a successful supplier partnership

What exactly defines a successful supply chain partnership? Is it just your picking of suppliers that can supply material to you at a low cost, minimum lead time and long payment terms or it is just the beginning? These are couple of questions that play in our minds when we are trying to fix our supply chain for better efficiency, effectiveness and cost. We wanted to have a dig at the strategies that should be part of our program to improve our supplier partnership to make them more profitable for both the sides. The strategies that have changed over time and more so as an impact of the recently concluded recession, it has become clearer that squeezing the suppliers might not be the right strategy going forward as you run the risk of breaking your supply chain in case their financial viability is in danger. The strategies in our view should be:

• First and foremost strategy is collaboration. As I keep on mentioning during conferences and my articles, today the supply chains compete instead or organizations and the efficiency of a supply chain can only be increased if all the stakeholders are collaborating, sharing knowledge and information and taking joint actions. This also improves the visibility within the supply chain and hence the issues can be fixed pro-actively
• Try to resolve the problems not only at your end but at your partner’s (supplier or customer) end also. Please always remember that it is the partnership that will succeed and not just one of the partners
• You can't rest on your laurels. Customers demand to see a plan for product development (especially in technology) so they know their future needs will be met. Similarly smaller suppliers look upto their customer organizations to help them plan their MRP with less volatility. These measures can reduce the costs at both ends and after-all both the partners will benefit and the probability of it becoming a far more successful customer supplier partnership will increase manifold
• Customers have lot of expectations from their suppliers. Customers outsource to those who have the expertise, so they depend on vendors to implement, train, maintain and support the technologies and service provided. Support is almost as important as the technology or service itself. So it is important for the supplier to invest equally in support of services
• Commitment is the key to a longstanding and fruitful relationship. Customers carefully monitor the leadership of their supply chain partners, their seriousness to groom the partnership and if the objectives of their organization finds any mention in the joint vision statement of their strategic vendors
• The main driver for purchasing any new product, raw material, technology or service is cost savings, but the most the important financial measure is value in terms of increasing sales, production or other revenue-related metric. This should remain at the forefront of all the strategies and tactics

The crux of the matter is that the prime strategy for improving the success of a customer supplier partnership is to work together and win together instead of winning at the other’s expense.

SCM Lean Strategy: Keep your Vendor Master clean and well maintained

Vendor Master Management is one of the most critical parts of the procurement and accounts payable business functions and often it creates inefficiencies in the processes and stops their movement towards a leaner supply chain. This failure of system controls due to unclean, redundant or ambiguous data in vendor master can result in duplicate and erroneous payments, missed potential discounts, delay in check realization, un-applied or misapplied credits, reporting errors for tax and fraud etc. There is a strong business case to maintain a healthy vendor master so that the vision of lean supply chain becomes reality as soon as possible for an organization. The steps that we need to take care of, for a well maintained vendor master are:

• Identify the right owner: While every organization has an owner for the vendor master but it is equally important that the owner know about the vendor master requirements, its standards, data quality-accuracy-consistency maintenance ways etc.
• Deploy Master Data Management Solution: Modern MDM solutions are an excellent value-add for maintaining your master data and vendor master being one of most critical masters, will benefit a lot from this initiative. It will ensure that you have enough controls, automation, access-create-modify-delete rules in place and are being monitored by management regularly
• Clean the data and deploy cleaner rules: It is well known that duplicate, redundant and inconsistent data spoils the whole procurement cycle in terms of reduced effectiveness and efficiency and it has bullwhip impact on the end to end supply chain. Many a times, this data inaccuracy robs an organization to claim volume discounts, deflation etc. from suppliers. We not only need to clean the data but also make rules stringent enough so that the data stays clean
• Standardize naming conventions: No need to mention that if a supplier is named as Alkes Info Systems and AIS and Alkes and all of them are coming as different vendors in your report, how in-effective will be our vendor management policy. We need to standardize the naming convention of naming vendors, items etc. so that no duplicate data is created – Most of this will be taken care of if you have right owners and an MDM solution in place
• Separate out one time vendors with regular vendors: Often, one time vendors (or less than 5 transaction vendors) inflate the data in vendor master and the supplier reporting MIS gets skewed. Explore strategic sourcing and the use of p-cards to reduce need for one-time vendors. For lowering the risk of duplicate payments, consider not allowing manual or electronic data interchange transactions with vendors on p-card programs

Other than above, smaller measures like purging the unused records, retaining the right records, updating the policies regularly etc. will also help in keeping the health of vendor master as good for supply chain.

Manage your suppliers by collaborating

One of the hot topics these days is how to manage suppliers and how to keep the good suppliers for a longer term. Let me write down my thoughts on this topic today. Successful supplier relationships require two-way information, recommendations, metrics and incentives. Manufacturers need to adopt the following strategies to manage suppliers throughout a contract's life:

• Understand the cost and value of the entire supply chain. Without a thorough understanding of all costs, from raw materials through the end product or service, and the value provided by each supplier in the process, a supplier cannot be evaluated
• Realize that supplier strategies go two ways. Most companies focus on what suppliers can do for them rather than on what they can do with the supplier to lower costs. A true partnership leverages the total production cost to both parties' advantage
• Accept accountability. Companies should plan sufficiently in order to request orders from suppliers with acceptable lead time and without multiple changes. If every order requires emergency handling, the relationship will never work
• Incorporate appropriate service levels and metrics into agreements. A relationship based on a handshake is far more likely to encounter problems than one in which expectations are clearly established and agreed upon
• Spend equal time aligning incentives and penalties. It is natural to worry about the worst case, such as if a shipment is not received and a plant grinds to a halt. Conversely, the extra value created when production and asset utilization is optimized should be the basis of improving the value proposition for both parties
• Share critical information as early as possible. Information is the grease that makes an integrated supply chain work. Waiting to share critical volume and timing information with suppliers can create lost business for the company or excess inventory and added costs for suppliers. Sharing information constantly, with appropriate security and confidentiality, is critical for successfully managing a supplier relationship
• Plan for everyday exceptions. Sometimes emergencies will occur, especially in complex, multiparty supply chains. Agree ahead of time how emergencies will be handled and analyze why they occur so that the number of emergencies is minimized
• Plan for major contingencies. Unavoidable events that stress the supply chain should be planned and practiced. Some industries, such as utilities, implement plans for natural disasters. Every supply chain strategy requires similar foresight and joint planning so that disruptive events can be managed smoothly
• Expect and reward honesty. As in personal relationships, the best supplier relationships require honesty when exceptions to normal operations occur. Companies should require immediate notification without penalty when critical supplier situations occur
• Make relationship meetings meaningful. Companies often hold formal quarterly meetings without appropriate representation in which the vast majority of time is spent on information best provided through other communication forums. Instead, relationship meetings should focus on critical issues, areas for supplier improvement and discussions on how the buying organization can improve the relationship

Every relationship needs to be nurtured properly to make it effective and long lasting and supplier relationship is no diffierent in this context. Invest in it!