Supplier Development Consulting

To become an excellent supplier, your suppliers need to become excellent. 

Supplier Development

Supplier Development is the process of collaborating with suppliers to improve their processes and product manufacturing capabilities. Supplier knowledge and technology of the products they supply can be leveraged through supplier development with the OEM (Original Equipment Manufacturer) or service provider to reduce cost and lower project risk. Supplier development is closely related to supplier relationship management and is the process of working with certain chosen suppliers on a one-to-one basis to improve their performance for the benefit of the buying organization.

 

An objective of Q-1 is to identify supplier expertise and initiatives that can benefit the OEM. A strong collaboration between the OEM and their suppliers shortens the development cycle of products and decreases the time to market. Q-1 provides the strategic planning, structure and activities required for a capable and highly beneficial supply chain. Organizations frequently experience problems with suppliers, such as late deliveries, poor quality and slow and/or ineffective response to problems. AGS-Engineering provides Supplier Development solutions to such concerns by utilizing strategic planning, project management, training and facilitation to leverage supplier expertise. Q-1 assesses suppliers to determine risk levels to create and establish a mutually beneficial relationship.

 

Our Q-1 SDEs (Supplier Development Engineers) are selected based on core competency certifications required for each customer. AGS-Engineering SDEs are professional engineers with strategic supplier engagement experience. Q-1 does planning and staffing to meet customer engineering needs. Q-1 strategically segments Supplier Development into five functions:

 

  1. Strategic Planning & Risk Definition

  2. Engagement & Collaboration & Project Management

  3. Training and Facilitation

  4. Quality Systems, Process & Controls

  5. Continuous Improvement and Surveillance

 

Q-1 communicates to purchasing and engineering, through the publication of intuitive Red, Yellow Green graphical interface diagrams. Our activities are focused on suppliers, parts and processes with the greatest risk to your end product’s safety, performance and reputation.

 

Here are some of our services in the area of Supplier Development. We can help you in any way that fits your organizational goals and strategy:

 

  • Supplier Development

  • Measuring Key Suppliers

  • Supplier Appraisal

  • Monitoring of Supplier Performance

  • Supplier Relationship Management

 

Supplier Development

Supplier Development is the process of working with certain suppliers on a one-to-one basis to improve their performance (and capabilities) for the benefit of the buying organization. Supplier Development can take the form of a one-off project or an on-going activity for many years. Joint buyer/supplier development activity to improve the integrated performance and capabilities of both the supplier and the buyer is more commonly referred to as partnering. The major driving force for development of suppliers has been the competitive pressures of the marketplace, and it is through the decisions of many individual purchasing departments that this force acts. As market places have been moving more and more from local to national to global, the strength of this competitive force has been dramatically increasing. Instead of constantly changing suppliers, there is a case to be made for reducing the cost and risk by taking a current supplier and helping it to develop performance and capabilities that will be of value to the buying organization. We believe that it is best to view supplier development as a long-term business strategy that is the basis for an integrated supply chain. In simple words, Supplier Development is about giving regular feedback of the supplier’s performance as experienced by the buyer’s organization, together with any customer complaints. This information can provide a strong incentive for suppliers to improve their performance, particularly in areas such as reliability of products, on-time delivery and short lead times. This approach can be further strengthened by using the expertise in the buying organization to develop the supplier’s capabilities and increase the total added value in both products and services. Purchasing professionals should also be receptive to the possibility of embracing supplier expertise and aligning it to the buying organization's business needs. In other words, this is a two-way process. Another advantage of this supplier development approach is that the areas chosen for improved performance or capability are tailored to the specific needs of the buying organization, and this alignment ensures that the benefits feed directly through into the organization’s products and services, making it to become even more competitive in its own marketplace. There are many different types and approaches of supplier development that are appropriate for different supply markets and purchasing professionals must select the most appropriate approach to suit the relationship they have with the supplier. An agreed and well-thought dispute resolution procedure within the contract should establish the root causes of the problem and a requirement for procedures to be modified, or new procedures to be introduced, to ensure that there is no future repetition of the problem. A fundamental prerequisite for supplier development strategy is that purchasing professionals analyze, evaluate and appreciate their own organization's corporate objectives and business needs. The supplier development projects which are undertaken must be in support of the purchasing strategy which, in turn, supports the organization’s main strategy. Supplier development requires technical skills, contract management and project management skills, interpersonal skills. Communication needs to be developed between the buying organization and the supplier to sell the idea behind the development project both internally with colleagues and to the supplier. Buying organization needs to study the supply base and evaluate the extent to which it meets its needs. Suppliers of key supplies and services should be rated according to their current performance and an ideal, or desired, performance as well and compared to other suppliers. This evaluation should also cover the relationship between the two parties, and how this compares to the preferred type of relationship. Since supplier development is a resource-intensive process, it should only be undertaken with those suppliers from which real business benefit can be derived. The supplier's performance against agreed criteria should be measured in order to identify the scope for development at the outset and, once the development process has started, to monitor and manage improvement. Suppliers will be more motivated to take part in a development programs if complex detailed reporting is avoided. Highly visible key milestones are the best monitoring system. Timetables for specific developments need to be reasonable in length. Providing incentives to suppliers can be a key to success. Increasing the buying organization’s commitment to a supplier can encourage co-operation in a development program. This could be achieved by adding the supplier to a preferred supplier list. Especially if a significant supplier investment is required for capability or product development, the offer of a longer contract period can be helpful. The development of the supplier will be of benefit to the supplier's other customers too. This in itself may be an incentive for the supplier to participate in a supplier development project because they can improve relationships with all their customers as a consequence. Purchasing professionals should always keep the starting objectives of developing a supplier in mind. This information should be used to determine when the process of developing a supplier can be brought to an end as the objectives and targets have been measured and delivered. Whatever approach to supplier development is employed, purchasing professionals should ensure quantifiable and measurable results that lead to business benefits. Input into a supplier development program is required from many parties, with purchasing professionals being best qualified to lead and manage the overall program.

 

Measuring Key Suppliers

Suppliers need to find out what their customers are measuring their performance on and start measuring it. Suppliers should be measured on shared goals. With the development in the type of relationships that are built with suppliers, procurement professionals face new challenges on how they measure the performance of the relationship and how they manage the balance in dependency when using a smaller number of suppliers. Buyers have to manage the trade-off between the risks of dealing with single sources and the opportunities that partnering can bring to the table. How can suppliers obtain recognition for winning new business. The existing known supplier has more chance of winning business than new suppliers, as switching to a new provider has not only cost implications, but is also high risk, a path to the unknown. By aligning strong relationships with fewer suppliers there can be a concern over potentially creating an anti-competitive environment. In some industries, very few suppliers globally play the game in a large market. Some organizations are looking at the extended service offering method in order to differentiate themselves in the market. Individuals, their attitudes, methods of communication and behavior have an impact on relationships and no policy or process can steer every individual down the same path. There are basically 3 types of partnering relationships, the most basic level only offering limited co-ordinated activities. Second tier partners (type 2) are involved with CPFR (Collaborative, Planning, Forecasting and Replenishment) activities such as passing the POS (point of sale) information back to suppliers for analysis. The more embedded partnering, type 3, involves sitting down with the suppliers and discussing issues and solutions on an operational and strategic level. Trust, commitment and continuity are the three major success factors for relationship management and measurement, along the following building blocks:

 

1. Trust and commitment; relationship continuity

2. Investment in the relationship

3. Dependence on the relationship

4. Personal relationships

5. Reciprocity and fairness

6. Communication

7. Shared benefits

 

Lean vs. agile, which one to choose ? Studies showed that agile pays off better than lean. However it’s about what is most appropriate for your organization. Some corporations use a combination of both lean and agile techniques in their supply chain policy. Their standard products are uniform, available all year round and use a lean approach yet they have additional season or infrequent products that rely heavily of agility.

 

Supplier Appraisal

Without a solid, cohesive supply chain, organizational competitiveness is seriously compromised. The quality of the supplier base is critical to the effectiveness of a supply chain. Conducting supplier appraisals is a key task for a purchasing professional. Supplier appraisal or also called supplier evaluation is an assessment of a potential supplier’s capability of controlling quality. Delivery times, quantity, price, and all other factors are to be clearly outlined in a contract. Appraisals should be carried out at the pre-contrast phase of supplier sourcing. Pre-contract, supplier appraisals for strategic suppliers are part of a good procurement practice. They would help to mitigate against a catastrophic failure due to supplier’s failure within the supply chain.

The benefits of supplier appraisals include:

  • Determining that the supplier has the same culture and ambitions as the buyer.

  • That the management teams at both organizations are on the same page.

  • That the supplier has the capacity for operational expansion in line with buyer’s business requirements.

  • An evaluation of the supplier will also serve a strategic analysis process, and identify the gap between current performance and future performance that is required.

 

Even though supplier appraisals are a pre-contract activity, they can also be part of a post-contract supplier development activity. Appraisals may also involve analysis of supplier scorecards. Information gained from supplier appraisals will demonstrate the supplier’s level of operational efficiency. Performance gaps identified can be managed by the buying and supplying teams. At the strategic level, supplier appraisals may identify which potential suppliers to develop further; and perhaps develop a more strategic relationship with. Reasons to promote success in using supplier appraisals:

 

  • The time and resources put into measurement will be commensurate with any benefits realized.

  • Simple measuring systems gain greater support from within the organization than more complex measuring systems.

  • Performance measurement must be view as a tool to aiding decision making.

  • The measurement criteria should be weighted according to the priorities of the customer.

  • Measurement criteria should be discussed with the supplier prior to its use to ensure supplier and buyer are on the same page

  • Both organizations should be encouraged to use existing information, rather than create more work for team members.

  • Depict suppliers’ performance in graphic form, in a prominent with the organization. This fosters ownership and a sense of pride.

  • Target a win-win situation for both parties.

 

The buyer should set up recognition and reward systems to acknowledge outstanding supplier progress.

 

To summarize, supplier appraisal (aka supplier evaluation) is a key task of the procurement professional. Supplier appraisal may be viewed as being both pre- and post-contract activity, and lead to more efficient and effective management of the supplier base. This can make organizations more competitive in the global marketplace.

 

Monitoring of Supplier Performance

Performance monitoring means measuring, analyzing and managing a supplier's ability to comply with, and preferably exceed, their contractual obligations. Especially with repeat business and/or more complex service requirements it makes sense to monitor performance against contract requirements over time.

There is inevitably a degree of risk and uncertainty at the start of a contract for the parties involved. As the contract proceeds, both parties learn from experience and the risk begins to diminish as the contract terms come to be tested. However, it is easy to become complacent and let slipping standards go unnoticed. Therefore, there is a need for monitoring and measurement of performance. Monitoring the performance of suppliers is a key aspect of procurement, however it can easily be under-resourced or neglected. When post-contract performance monitoring is performed, the purpose is twofold:

 

  1. To ensure that the supplier is meeting the performance criteria laid down in the contract

  2. To identify room for improvement

 

Regular review meetings are advised where both parties seek to understand how they can make the contract perform better. Meetings between buyers and suppliers should be two-way, with both parties learning from each other; the buyer can get the opportunity to improve its own performance as a result of supplier feedback. It is vital that the buyer keeps managing the supplier and deals with problems as and when they arise. There are many contractual relationships with suppliers where it is more important to agree on joint goals and jointly measure performance against these goals instead of the buyer simply monitoring the supplier's performance. This type of relationship allows the supplier to monitor its own performance. Procurement personnel should also note that this process requires transparency and, where appropriate, the sharing of business goals. Performance monitoring is also part of supplier relationship management. The purpose of investing in a relationship with a supplier is to improve the supplier's performance in fulfilling the needs of the buyer.

There are three different aspects to the monitoring of supplier performance:

1. Gathering factual, and therefore objective, information about their performance such as lead-times being met or missed, quality standards being met, pricing compliance and whatever else is laid out in the contract. This type of information can usually be obtained from the IT systems in the organization.

2. Obtaining the experiences of the customers in respect to service, response….etc. This should be as objective as possible, although in some cases it may, inevitably, be subjective. One way to collect information on performance is by individual interview against a defined set of questions. This can be face-to-face or on the phone but needs to be interactive so that the interviewer can explore the background when necessary. The procurement function will have to assess the validity of any subjective remarks. Sometimes commitment is required from people like engineers in the field, to keep records of their experiences of working with a supplier in order that objective factual data can be used. Another way is to carry out customer satisfaction surveys that can be quite short and distributed by email.

3. The supplier's experience of working with the buyer must also be considered in the evaluation, as it might be the case that they are facing unnecessary obstacles or dealing with difficult people.

A number of key factors can be used to assess supplier performance and be used as a yardstick for determining whether good practice is being achieved in specific situations. Some examples of these key performance indicators are:

  • Quality of product

  • On time delivery performance against agreed delivery lead times

  • Percentage of incoming rejects (delivery accuracy)

  • MTBF (Mean Time Between Failure)

  • Warranty claims

  • Call-out time

  • Service Quality, Customer service response time

  • Relationship, accessibility and responsiveness of account management

  • Maintaining or reducing costs

 

Key performance indicators (KPIs) should be discrete, easily understood, and provide sufficient data to facilitate swift analysis of the current situation. The procurement team should assess the relative importance of each KPI, assign numerical weighting and agree on scoring guidance.

Procurement professionals should also be aware of the so-called 'soft' issues frequently encountered. These include such considerations as ethical issues, sustainability issues, professional relationships, cultural fit and innovation.

Suppliers should always be asked to continually improve their contract performance. However, incentives are required for the supplier to reflect improvement in costs or to give more for the same price. Incentives can take many forms.

Performance monitoring can be a time-consuming task and so the effort and methods should be proportionate to the value and importance of the contract.

The measures, objectives and targets used in monitoring the supplier’s performance must reflect those that were agreed on at the time the contract was signed. Therefore it is important to specify a commitment to continuous improvement at the very beginning. It is generally unfair to the supplier to suddenly introduce a range of measures after the contract has begun unless there is agreed contract variation framework that allows the introduction of such measures in order to meet the aspirations of the parties to the contract in terms of continuous improvement.

Key suppliers of high value and high risk goods and services require close performance and relationship monitoring. Most resources should be employed for them. This may well involve monthly meetings where performance is discussed, issues resolved and new targets set as appropriate. Key supplier failure can be disastrous to a business, and therefore it is important to ensure that the contract contains suitably robust exit clauses and contingency plans.

We encourage procurement professionals to hold feedback meetings with suppliers at the suppliers’ premises, where appropriate, because this enables them to assess efficiency levels on the suppliers’ 'home ground'. The situation may, however, be somewhat different for some service or product suppliers.

Performance monitoring may not be suitable for all suppliers; however, it is good practice to include supplier measurement and monitoring in all contracts so that quality, price, delivery and service levels can be monitored to ensure contract performance and compliance.

In the event that a supplier consistently fails to meet the requirements of the contract (and/or does not respond timely to feedback or suggestions) then the remedies set out in the contract must be considered.

Since performance monitoring is expected to lead to continual improvement, most suppliers would expect a long-term business relationship with the customer. This may involve contracts of several years duration, with options to extend for further periods, if the supplier performs satisfactorily.

AGS-Engineering strongly encourages procurement professionals to monitor the performance of key suppliers in terms of their growth, market share and financial standing so that the buyer remains aware of the profile of important suppliers within their market sectors. Especially with key suppliers it is advisable to hold regular meetings at both operational and strategic levels to support the relationships and explore future market opportunities.

Supplier Relationship Management

Procurement professionals create value for an organization as a result of its need to acquire goods and services from external sources. One of the strategic ways that this objective is achieved is by relationship management. Relationships have two aspects:

  1. Clear commitment between the two parties involved

  2. The objective of understanding, agreeing, and whenever possible codifying the interactions between the two parties

 

Supplier Relationship Management is the process for managing these two aspects in the interaction between two entities, namely the supplier of goods or services and the customer/end-user.

 

Supplier relationship management refers to the more complex relationship development associated with period contracts, rather than the more straightforward performance management of individual orders. SRM is a mutually beneficial two-way process in that it should improve the performance of both the buying and the supplying organizations. It involves proactively developing relationships with particular suppliers.

 

There are three common levels of management that are applied by buyers when dealing with suppliers. They may overlap to some degree but here they are:

• Contract Management, which involves managing the process of developing a contract and post-contract administration, such as ensuring the performance of the contract.

• Supplier Management, which includes the contract management but additionally involves a focus on improving the performance of the supplier in fulfilling the needs of the buyer.

• Relationship Management, which includes contract management & supplier management, but additionally both parties actively seek to become sufficiently familiar with each other that they can predict how each other will react under unexpected circumstances.

The purpose of investing in a relationship with a supplier is to improve their performance in fulfilling the needs of the buyer. The buyer may have to implement changes in order for the supplier's performance to improve. Performance management, and managing changes to improve that performance, and monitoring performance are at the core of Supplier Relationship Management.

Relationships with suppliers vary in business. A relationship can be deliberately arms-length but nevertheless cordial when there is no business benefit in developing it further such as is the case when a supplier provides relatively low-value items required on an irregular basis with minimum risk. On the other hand, relationships can be close, long-term and enacted on a partnering basis as may be appropriate in high-value, high-risk projects such as joint ventures

Relationship management can be viewed as the art of effective procurement which supports the science of using appropriate strategies, tools and methodologies tailored to particular situations and suppliers. Supplier Relationship Management can be a resource-intensive process that should only be undertaken when measurable value can be extracted from the relationship greater than the costs involved.

If a supplier operates an equivalent of SRM, called customer relationship management or CRM, as a first step it would be useful to ascertain how the supplier sees your organization as a customer as this could be a critical factor in deciding whether or not to pursue a ‘relationship’ approach.

An activity that should be undertaken at the outset as part of strategic sourcing is the supply positioning process. This allows the buyer to determine the effect of the supplier on the buyer and the value of that effect. Following this process, a strategy can be developed to build an appropriate relationship. As an example, if the buyer's requirement is ‘strategically critical’ and the supplier perceives the buyer as ‘core’ then there is potential for an intimate relationship where both parties are prepared to invest equal resources. On the other hand, if the supplier perceives the buyer’s ‘strategically critical’ requirement as ‘exploitable’, then the procurement professional should take great care and preferably search for a new supplier, or undertake extensive ‘supplier conditioning’ in the hope of making their business appear more attractive and lessening the risk of exploitation. The supply positioning technique is an appropriate method of determining the extent to which relationships with different suppliers need to be managed and the resources that should be invested in the relationship.

The method of achieving the goal relationship management is highly dependent on some of the factors that are responsible for achieving successful interpersonal relationships. They are:

 

  • Regular communications

  • Openness and information sharing

  • Commitment and equality

 

In relationship management, the buyer focuses on the supplier’s organization and uses openness and information sharing to learn about unknown potential benefits that the supplier may be able to provide and in turn the supplier learns something of the buying organization’s operations and can possibly spot opportunities to enhance the benefits of their offering.

To conclude, putting it down more explicitly we can list some of our service areas as:

 

  • Skills Gap Analysis

  • Capability Development

  • Assisting in Supplier Competency Assessment

  • Assisting Clients in Supplier & Bid & Tender Evaluation

  • Assisting Clients in Developing and Managing Contracts

  • Supply Assurance and Compliance

  • Risk Analysis / Mitigation / Risk Management

  • Performance Check

  • Assisting Clients in Supplier Appraisal

  • Assisting Clients in Supplier Performance Monitoring

  • Continuous Improvement of Suppliers

  • Assisting Clients in Supplier Relationship Management

  • Assisting Clients in eCommerce Systems

  • Preparation of Tools, Templates, Checklists, Surveys…etc.

  • Auditing of Suppliers

  • Tailored Skills Training

AGS-ENGINEERING

Fax: (505) 814-5778 (USA)

Physical Address: 6565 Americas Parkway NE, Suite 200, Albuquerque, NM 87110, USA

Mailing Address: PO Box 4457, Albuquerque, NM 87196 USA

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