HomePublicationsInsightsMANAGEMENT AND DEVELOPMENT OF SUPPLIERS - PART 2

MANAGEMENT AND DEVELOPMENT OF SUPPLIERS - PART 2

In the first part of this article, the author introduced the topic by addressing the antecedents of this supplier relationship strategy, the main reasons for implementing a program of this nature, and segmented the supplier development initiative between actions aimed at identifying new suppliers and improving those existing in the supply base.

On that occasion, it was commented that the success of a Supplier Development Program (PDF) depends on some factors, which can be considered critical to the implementation 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 total cost of ownership were mentioned in the first part of this text.

It is also important to note that a PDF requires excellent interpersonal skills from the project manager to effectively open communication between the buyer and the supplier and act as a facilitator between the parties involved in the process. It is very important that the manager “sells” the idea well to the internal public and also influences the supplier to participate in the program. The reader will realize the need for these skills during the second part of this article, which will focus on the step-by-step implementation of the development program for existing suppliers, that is, participants in the company's operation.

ROADMAP FOR IMPLEMENTING THE SUPPLIER DEVELOPMENT PROGRAM

A supplier development program can vary greatly in terms of the mechanisms to be used to correct or improve suppliers, depending on the degree of sophistication of each measure, associated with the objectives to be achieved. Figure 1 lists the main approaches used in a PDF identified in research on the subject. They are listed in order of adoption priority among Purchasing professionals interviewed in these surveys.

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Figure 1 – Supplier Development Initiatives
Source: Adapted from Wagner, 2006

 

Depending on the type of problem, corrective actions can range from limited efforts, such as just an informal request for improvement, to the deployment of significant resources, such as staff training or even investment in supplier operations.
Toyota and Nissan, for example, started their PDF teaching maintenance to their suppliers and later increased the scope of these teachings, including the development and design of components. While these companies' programs differ significantly, both emphasize learning among vendors, joint problem solving, and knowledge sharing with partners.
Honda's supplier development program is more recent than those of Toyota and Nissan, but it also resembles those of the previous two with regard to individual assistance or study groups directly on the factory floor. The activities included in Honda's PDF also increased over time, including all the competences of the supplier companies.
Establishing a PDF is a task that demands significant resources from all parties involved and needs to be handled in a structured way, in order to reduce the risk of failure. The script presented here can be used as a reference to guide the creation of a PDF, and it is up to the reader to judge the propriety of using it in full or in part, depending on the extension and complexity that one wishes to print to the program.

 

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Figure 2 - Supplier Development Program Roadmap
 Source: Own elaboration

1) Identification of the relative importance of products/services

The first stage of this roadmap deals with the identification of possible items that should be given special attention and in which any change in supply has a significant impact on the company's operations. Thus, supplier development programs should be established for a highly representative set of categories. The classification of product/service families or categories, presented in the first part of this article, is an excellent resource to focus on PDF analyses. Normally, interest is focused on items classified as strategic or as bottlenecks.

2) Measurement of suppliers and identification of candidates for the program

The next stage is almost an extension of the previous one, as it seeks to identify, within each category of products/services mentioned above, those suppliers that perform below a certain minimum level established by the buyer. For this, there is a need to evaluate suppliers in certain parameters such as technical capacity, quality, on-time delivery, cost reduction, managerial capacity, product and process technology, environmental responsibility and financial health, among other issues.

Figure 3 shows a schematic representation of how the candidate supplier to join the PDF can be identified. See, for example, that for critical item A, suppliers 2 and 3 are candidates to join the program. As for item B, only supplier 3 would be considered. Finally, for item C, supplier 3 would also be indicated. This classification can also be used to help the company rationalize its supplier base, eliminating those that account for low volume and perform well below the minimum expected level.

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Figure 3 - Schematic representation of the Classification of Suppliers
Source: Adapted from Monczka et. al.

3) Identification of areas of interest.

The vendor assessment presented in the previous step provides valuable general information about the area of ​​disability, but the result is usually too broad to actually be used in a PDF. For example, let's assume that the evaluation process showed that the supplier is performing poorly in terms of quality. However, up to this point, the buyer does not know the true cause of the quality problem. It may be related to the design, the manufacturing process, or simply due to poor training of the supplier's workers. The purpose of this phase of the roadmap is to specify the cause of the problem.

As already shown, supplier performance problems can occur in the dimensions of required capabilities (technical, production, quality, delivery, financial and managerial). However, these same problems can also be framed in sources of resources of the supplier company, such as, for example, product, processes or operating systems. This generates interactions between required capabilities and resource sources unfolded in the matrix depicted in Table 1.

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Table 1 - Areas of interest of a PDF
Source: Adapted from Hahn et. al.

Thus, when a company experiences a quality problem with a product from a given supplier, the problem must be investigated in greater depth, because it can be related to the product itself, due to poor design or incorrect material specifications. On the other hand, it can be totally related to the manufacturing process, due to inadequate capacity of production machines or poor labor. Or, the problem may be linked to the operating system, due to the low reliability of the quality control mechanisms. And finally, the problem may be a reflection of the interaction of the various elements mentioned.

After identifying the causes of the problems and defining the development areas, the PDF team organizes its work projects with cost estimates, targets and schedules that will support their defense in the purchasing company's decision-making spheres.

4) Risk analysis

As mentioned earlier, the Supplier Development Program is a multidisciplinary team effort in which functions other than Purchasing are uniquely important at each stage of the process. For example, in the previous phase, engineering personnel have a major role in identifying problems. In this phase, finance personnel play a major role, making their contribution with regard to financial analysis of possible projects planned in the previous phase, defining expectations of gains with the results to be obtained from a given project and establishing a mechanism for sharing the results. supplier costs.

5) Definition with the supplier about the projects to be implemented.

After identifying opportunities and carrying out financial analyses, the buyer's and seller's top management seek to define the work to be performed. For this, it is necessary that certain aspects are considered in this decision-making process. Some examples of factors that should be observed are: feasibility of the projects; goals to be met; supplier's work program in the path of implementing changes; strategic importance of changes; business impact; percentage of costs that will be divided, etc. The end result of this phase, therefore, is the identification of what will be done and how it will be carried out, specifying the role of each party, who is responsible for the success of the project, and how and when the resources should be available.

FACTORS OF FAILURE IN PROGRAM DEVELOPMENT

The factors listed in Figure 9 are some of those identified by Robert Handfield, Daniel Krause, Thomas Scannell and Robert Monczka in a survey of 84 companies in the telecommunications, automotive, electronics, non-durable consumer goods and aerospace sectors.

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Figure 4 - PDF Failure Factors
Source: Adapted from Wagner, 2006.

1) Lack of supplier commitment

It is necessary that suppliers, right at the beginning of the process, be able to identify what their rewards will be. They may even agree with the buyer's ideas and even say that they agree with the project, but if they are not convinced of the benefits they will receive, they will not make the necessary efforts or have enough dedication for the success of the venture.

2) Lack of Supplier Resources

Some suppliers do not have the engineering resources, equipment, information system, employee skills or other needs to implement the ideas identified in the development program. To overcome these gaps that compromise the program, many companies invest significant efforts to improve the supplier's infrastructure through technical support with buyer's personnel, training of supplier's personnel or even financial investment to increase capacity.
3) Lack of trust between the parties

One of the biggest challenges with PDF is cultivating trust among program participants. Suppliers may be reluctant to share information that is considered confidential, such as costs and process details. This is because some factors existing in the relationship can contribute to the climate of mistrust between the parties. The establishment of an inefficient communication channel between those involved in the program and the configuration of a legal framework assembled by the buyer's lawyers in an ambiguous or imperative manner are some examples, among many others, that could be brought to this discussion.

4) Relationship management

A supplier development program is part of an initiative called relationship management. Therefore, the lack of importance in relationship management can compromise the entire program. Keep in mind that program objectives are time consuming and are only achieved through patient and persistent relationship management, with frequent visits and a strong performance evaluation and feedback program with the supplier.

To illustrate the applicability of the supplier development system in operation and demonstrate the significant returns obtained with this initiative, we can mention the recent experience of a certain national company with its packaging supplier (cardboard box) for filling one of its products . The company in question, following a procedure similar to that described in this text, reached the following conclusions regarding this partner in the supply of packaging:

  1. a) The supplier was classified as strategic due to several factors, including due to the high volume of financial resources involved in the transactions between both;
  2. b) There was dependence of the purchasing company on that supplier;
  3. c) The supplier had a high rate of quality problems;
  4. d) This supplier's service level problems were constant;
  5. e) He was considered an important supplier for the packaging innovation process that was underway in the purchasing company, at the same time that the mentioned performance problems were found;
  6. f) There was a great lack of communication and understanding of performance indicators between buyer and seller.

In view of the listed problems, it was decided to include this partner in the Supplier Development Program. When the causes of the above problems began to be identified, together with the supplier, it was realized that there were also great opportunities for cost reduction. This was easily identified, as the supplier's cutting process of the large cardboard board (cardboard) to form the packaging boxes generated a lot of trimmings and, therefore, a lot of waste.

From this point on, the buyer's PDF team, in addition to working on the performance issues mentioned above, also began to focus heavily on developing a sales package that would allow for less waste in terms of trimmings. Therefore, this initiative should aim to identify an optimized cardboard box size with the smallest square meter of cardboard per ton of product, considering the following:

  • Width of the cardboard raw material used in the formation of the package;
  • Vendor capabilities to change their board cutting process (big board board);
  • Adequacy of the buyer's production line to fill the product in the new packaging;
  • Specifications for palletizing and transport of the final product in the new packaging;
  • Distribution cost;
  • Acceptance by the final consumer of the company purchasing your product, when presented in another packaging format.

Acceptance surveys were then carried out with the final consumer, which showed satisfactory results in the direction of this change and the new sales packaging box at the end of the supply chain was approved. After consumer approval, adjustments were made to the production lines of both companies and adjustments were also made to the distribution assets of the product with the new packaging.

There were several benefits achieved with this program, such as, for example, reduction of waste with shavings, greater productivity of product filling lines at the purchasing company and reduction of freight costs due to better packaging of new boxes on pallets, which passed to contain a larger number of boxes. Thus, the vehicles had an increase in productivity, as they also began to transport a greater number of boxes per trip taken.

CONCLUSION

The management of collaborative relationships with suppliers can be carried out through different supply strategies that emerge as a result of the transformation process experienced by Brazilian companies in the Purchasing/Supply area. However, the supplier development initiatives discussed in this text are those that, to a greater or lesser extent, are part of the routine of many purchasing companies, although 71% of Brazilian companies are dissatisfied with the implementation of their PDFs, as pointed out by respondents in an ongoing survey. in the ILOS among 96 national companies on the use of supply strategies.

The automobile industry and the high technology industry are two examples of segments that make great use of the resource of supporting suppliers in their commercial relationships. The first, already for a long time, has been demonstrating a high level of commitment in overcoming the performance problems of its suppliers, seeking cost reduction alternatives, solving quality problems, bringing technological innovations and also creating products and services not available in the market. .

Still, many industries are quite skeptical when talking about Supplier Development Programs in their supply chains. Some sectors still see the supplier as an opportunist and develop a true arm wrestling when interacting with these agents in their chain.

These industries have not yet woken up to the fact that the supplier makes a significant contribution to their companies' competitive position, and therefore it can be considered a fatal mistake to neglect the potential of their development practices. Here is the suggestion for these sectors to establish, as soon as possible, their supplier development programs, considering the use of people, technology and processes as outlined in the two parts of this article.

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.

 

https://ilos.com.br

Ataíde Braga is a Leader in Purchasing and Supply Practices at ILOS. He has been certified by the International Society of Logistics as a Professional Logistician. He is the author of several articles published in magazines and conferences in Brazil and abroad. His research area is focused on the relationship between customers and industrial suppliers. His professional experience includes responsibility for the acquisition of equipment and spare parts in the international market for maintenance of critical reliability systems.

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