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3 Reason Why You’re Not Optimizing the Value of Your Suppliers

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3 Reason Why Youre Not Optimizing the Value of Your Suppliers image According to an American Society for Quality (ASQ) 2013 Manufacturing Outlook Survey, One third of the 1,250 manufacturing professionals who participated said they anticipate experiencing a shortage of parts due to a problem with a supplier this year. Furthermore, eighty percent of survey takers had been adversely affected by a supplier’s inability to meet their needs in the past.

Manufacturers understand how dependent their success is on the operational performance of their suppliers and the survey reflects this. “Of the respondents who anticipate a problem with a supplier, 42.1 percent say they are working with partners on process improvements to mitigate volume capacity, while more than 26 percent are working with their suppliers’ competitors. Other manufacturers said they are stockpiling parts in advance of the issue and expanding facilities to make necessary parts themselves.”

However, it seems that many manufacturers do not look at the entire scope of their supplier management challenges in order to treat them in a systematic way and gain the most value from these relationships.

  1. Supplier relationship efforts tend to focus mainly on reducing prices paid using strategic sourcing or spend management initiatives.  These projects are attractive because of their short payback period.  However, for the most part, they ignore issues associated with supplier risks, the supplier’s supply chain capabilities and collaboration with suppliers regarding inventory and quality management. The projects may end up costing more than the price reduction savings negotiated.  Very often, apparent cost savings are significantly or completely eroded by the impact of delivery or the quality problems associated with the new supplier network.  And inevitably, the manufacturer’s planning process will call for higher levels of inventory to compensate for the supplier’s performance variability.
  2. Slow acceptance of supplier relationship management software that tends to be cumbersome to use.  This approach overall has unfortunately focused more on the data and software associated with supplier management rather than the strategies and best practices necessary to optimize the business value of suppliers.  As in many business initiatives, most of the benefit comes from changes in strategy, roles and responsibilities as well as operating techniques.  Too often software vendors lead the discussion of supplier relationship management and make it about how you can utilize their software rather than how your value proposition can be optimized.
  3. There are many organizational and strategic questions that need to be considered and resolved to ensure that the best outcomes are achieved, including the following:
  • Who owns the supplier?
  • Who owns the supplier management process?
  • What do we expect from strategic suppliers?
  • What should they expect from us?
  • What sourcing alternatives do we have?
  • Can we increase the number of qualified sources?

To read more about how to kick start your effort towards optimizing the value of your suppliers, download the white paper below.

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Written by Edith Simchi-Levi from OPS Rules Management Consultants

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