MANAGEMENT AND DEVELOPMENT OF SUPPLIERS - PART 1

The corporate world increasingly believes in the idea that a company, in order to compete and survive, must build and maintain relationships with competent suppliers and extract the greatest possible value from these relationships. In other words, the specialized competence of suppliers can have a substantial influence on the innovative capacity of the purchasing company and its ability to offer high quality products, contributing to the increase of its competitive advantages.

In certain industries, expenses with suppliers account for around 60% to 70% of the annual production cost, which once again reinforces the idea of ​​the need for integration with these partners. Fortunately, the relationship between buyer and supplier has evolved in recent years, accompanying all the growth of the Purchasing/Supply sector in the achievement of its strategic position in organizations.

Modern supply managers put aside that opportunistic view of their relationship with suppliers and began to see them as necessary resources for the company's operations and growth and, therefore, business partners, seeking greater rapprochement between them.

Studies on the subject prove that these closer relationships bring, among other advantages, the reduction of the supplier base, with benefits for their management, which is now carried out on a smaller number of members of that base. On the other hand, the selection of suppliers becomes a more complex and challenging activity, due to the factors that must be observed to guarantee that close relationships will be cultivated and maintained in a long-term perspective.

Several paths can be established for integration with suppliers. The automobile industry in Japan introduced the approach with its suppliers through training called Keiretsu, a term that designates a business model in which there is a coalition of companies united by certain economic interests. The interest, in this case, was due to the acquisition of a slice of the supplier company by the assembler.

A very effective alternative proven by practical results and academic studies was the creation of the Supplier Development Programs (PDF), which also emerged as an integration initiative in the automotive industry's supply chain and which became known as an organizational effort to create and maintain a base of competent suppliers that would contribute to greater productivity for the automaker, increased customer satisfaction and improved revenues.

DEVELOPMENT OF NEW SUPPLIERS

Traditionally, one of the most important activities performed by the Purchasing sector is the selection of organizations that will integrate the supplier base and, therefore, will be responsible for maintaining the inbound flow of products and services for the buyer. The aforementioned selection process is made up of several stages that must be interdependent and with different filters to arrive at the election of those who will be considered the most suitable, according to established parameters.

The identification of potential sources of supply is one of the first steps in the selection of suppliers and is covered with special contours when supply alternatives are few or almost none. Continuous monitoring of the supplier market through initiatives such as the establishment of a market intelligence structure can greatly facilitate the search for new partners. It is necessary that the buyer is picking up all the signs of oscillations in the set of suppliers. The more the buyer is aware of the participants in a given market, the greater his ability to identify alternative sources of supply.

Thus, some questions emerge as a result of the debate on the subject and must then be answered during the investigative process of new suppliers. What information should be gathered about the supplier market? How often should this analysis be done? What products and services should be covered in the survey? These are some examples of questions that pass through the researcher's mind.

With regard to the supplier market analysis, some factors to be observed can be found in Figure 1.

Figure 1 – Supplier market intelligence factors

For example, in times of global financial crisis like the one we are going through, it is recommended that buyers know details about the source of capital supply for suppliers, interest rate of these resources, difficulty to obtain them and where they will be applied. These issues are important, as the ease of raising financial resources can affect the ability to acquire machinery and technology to keep up with the buyer's growth, support efforts in research and development of new products or processes, maintain current levels of technological information or even investing in inventories to support ongoing operations with the buyer.

The search for technological innovations, on the other hand, is related to the constant concern of companies for product innovation and quality improvements to remain competitive. New technologies can be obtained through internal development or in conjunction with suppliers that carry out research and development investment. Knowing who owns the innovation is the first challenge. The second is convincing the innovative supplier that the buyer is a logical path for him to introduce his innovation.

The dynamism of the supplier market concerns the constant movements of this market, due, for example, to political changes between countries, influencing the availability of suppliers, and also to changes due to acquisitions and mergers between suppliers and as a result of financial instability, leading to breaking some of them.

I leave it to the reader to reflect on the other points in Figure 1, due to space limitations in this text and understanding that just citing the factors listed in the respective figure conveys the idea of ​​what should be investigated.

With regard to the products and services that should be included in the investigation, it is worth noting that the structured survey of information and analysis of the supplier market is a process that demands time and cost. Therefore, it is not recommended that it be used for any and all products or services purchased. It is recommended the elaboration of studies that identify the most important items that deserve the efforts of the sophisticated research that we are dealing with. A well-known alternative for companies is the use of the categories or families matrix, represented in Figure 2. It is observed that four large product families corresponding to the quadrants of the matrix emerge from the analysis of the figure, which is an adaptation of the seminal work of Kraljic .

Figure 2 - Product Classification Matrix

Source: CEL/Coppead Survey – 2007

Thus, it is suggested that the intelligence effort on the supplier market addressing the factors in Figure 1 starts with the strategic items, then with the bottlenecks and, finally, with the leverage items. The use of this data survey for items considered non-critical is not justified, due to their low representation and low supply risk. For the latter, simplified research using traditional information sources meets the objectives of selecting new suppliers.

Below are some initiatives of companies that, concerned with boosting their supplier base, have undertaken efforts towards supply alternatives. Whirlpool, for example, recently developed a partnership with Braskem to replace the steel in the cabinets of washing machines with thermoplastic resins and, therefore, introducing a new line of products. According to Whirlpool, owner of the Brastemp and Consul brands, the objective of the partnership with Braskem is not the reduction of production costs, but the creation of a lighter line of washers that is immune to rust. Depending on market acceptance, the appliance manufacturer will also analyze the possibility of increasing the share of plastic in other products, such as refrigerators, microwaves and even stoves (Valor Econômico, edition of 30/05/2008).

Another example, also very typical of the subject discussed here, was brought by the press regarding the decision of the French company Turbomeca to visit companies installed in the Vale do Paraíba region, in the interior of São Paulo, with the mission of choosing two or three strategic partners for the production, on a global scale, of helicopter turbine components.

According to Turbomeca, Brazil was considered by the company as a supply option around two years ago, due to the increase in world demand for helicopters. Important points in this decision-making process were facts such as the existence of Brazilian laws to protect intellectual property and the availability of qualified labor located in the surroundings of São José dos Campos (SP), where Embraer's headquarters are located. Such factors were enough for Brazil to stand out in relation to countries such as China, Russia and India, which have lower wage and production costs (Valor Econômico, 11/06/2008 edition).

Finally, there is the example of the automobile industry, which for many years carried out the distribution of its vehicles to dealerships using road transport with equipment called Cegonha (see Figure 3).

Figure 3 – Stork-type truck – mechanical horse set and semi-trailer (one or two axles), suitable for transporting cars and vans with capacity for up to 11 vehicles

With the development of the railway modal in Brazil, the option of using this means of transport for vehicles produced in the automakers arose, bringing a reduction in the cost of distribution and providing greater safety in displacements. There are already companies specialized in the rail transport of automobiles, which have their own fleet of wagons (see Figure 4) and which can set up a customized distribution logistics for the customer assembler. In addition, rail transporters have strategically located terminals throughout Brazil, which facilitates the loading of wagons.

Figure 4 - Example of a rail car for transporting vehicles

DEVELOPMENT OF CURRENT SUPPLIERS

This other segment of the Supplier Development Program (PDF) is normally aimed at those who need an improvement in performance due to deficiencies in quality, delivery time, need to reduce costs, financial difficulties and problems in adopting new technologies. The program can also be used as a roadmap to help some suppliers that need to increase their capacity.

The success of a PDF certainly depends on some factors, which can be considered critical to the execution of the methodology. Top management involvement, evaluation of supplier performance, use of cross-functional teams, extensive communication between the parties involved, long-term perspective and focus on the total cost of ownership are examples that contribute to the success of the actions to be undertaken.

Senior management involvement is critical for several reasons. First, many interactions with suppliers will have to take place at the highest level of organizations, due to strategic decisions that may occur between partners. Second, because many actions to be triggered at functional levels will depend on resources for their execution. And, finally, the fact that top managers know their companies' needs to remain competitive and, therefore, have better conditions to assess the need to implement a PDF.

The existence of a supplier evaluation system is another very important factor to identify those who need the development effort. The existence of this measurement system in itself brings improvements in performance, as suppliers become aware that they are being measured and, then, react positively to this fact, showing performance improvements. However, it is equally important to communicate to suppliers the results obtained by them during the evaluation carried out, so that the process can be transparent and credible.

Another important fact is that the purchasing company must seek internal integration and unity of opinion regarding the PDF, because a program of this nature involves different areas of the purchasing organization interested in its deployment. Certainly, issues related to engineering, quality, finance and other functions of the two companies will be discussed and it is necessary that the respective sector be involved in this process to give an opinion on these placements. To this end, it is recommended that a multifunctional group be established to deal with their respective peers in the supplier's structure, all of this facilitated and controlled by the coordination work of the buyer's PDF manager, who is normally the supply sector executive.

The two-way communication of the relationship with the supplier is characterized as essential in the literature that deals with the subject, as already attested by other researchers. The idea of ​​this interaction can be represented in Figure 5.

Figure 5 - Interaction between cross-functional teams of the buyer and the supplier

The initiative to establish a supplier development program may involve risks for both sides of the relationship. Therefore, buyer and seller must be willing to invest time, resources and assets dedicated to the program. Thus, these initiatives are only justified if it is stated from the outset that the actions and results obtained will have a long-term perspective.

Finally, the concept of total cost of ownership is important to guide decisions about the PDF program, due to the need to consider all the costs involved in the program and compare them with the expectations of gains that can be had with this undertaking.

CONCLUSION

The process of establishing and maintaining a world-class supplier base will always be ongoing due to the introduction of new technologies, changes in consumer demand behavior, changes in where low-cost suppliers are located, and changes in business needs. buyers. Thus, supply managers must always be attentive and implement a research structure in their organizations, to identify new suppliers that can boost the mentioned base.

In addition to the concern with the formation of the supplier base, supply executives have given prominence in their agendas to the management of relationships with suppliers. The importance of the theme has been confirmed by the already proven success experienced by companies in Brazil and abroad due to the integration and collaboration with their business partners.

In the next edition, a roadmap will be designed for the implementation of a development program for suppliers in operation, with the purpose of contributing to the strengthening of relations between buyer and seller. The purpose of these close relationships has focused on improving value creation along several dimensions, including innovation, increased revenue, business continuity and reduced total cost of ownership.

BIBLIOGRAPHY

Braga, AR. Market Intelligence Applied to Purchasing/Supplies. Tecnologística Magazine, ed. January 2008.

Dunn, SC; Young, RR. Supplier Assistance Within Supplier Development Initiatives. Journal of Supply Chain Management. Summer, 2004.

Hahn, CK; Watts, CA; Kim, KY. The Supplier Development Program: a conceptual model. Journal of Purchasing and Material Management, v.26, nº 2, p.27, 1990.

Krause, DR; Scannell, TV. Supplier Development practices: product and service based industry comparisons. Journal of Supply Chain Management. Spring, 2002.

Krause, DR; Elram, LM. Critical Elements of Supplier Development. European Journal of Purchasing & Supply Management. v.3, nº 1, pp. 21-31, 1997.

Modi, SB; Mabert, VA. Supplier Development: improving supplier performance through knowledge transfer. Journal of Operation Management. v.25, pp. 42-64, 2007.

Monczka, R.; Trent, R.; Handfield, R. Purchasing and Supply Chain Management. 2nd ed. South-Western, Ohio.

Wagner, SM. Supplier Development Practices: an exploratory study. European Journal of Marketing. v. 40, nº 5/6, 2006.