Saturday, October 28, 2006

What is Supplier Development?

Most medium to large size companies have supplier development programs in place; many of these programs are programs in word only. Most of these programs are nothing more than "Supplier Quality Award" programs, in which suppliers receive an award for a certain level of quality and on-time delivery. While there is nothing wrong with doing this, it falls short of what is truly needed in a successful supplier development program.

Let's start by asking "What is the purpose of a supplier development program?" At a minimum, a supplier development program should be aimed at achieving the following:


  • Lower supply chain total cost
  • Increased profitability for all supply chain participants
  • Increased product quality
  • Near-perfect on-time-delivery at each point in the supply chain

Most supplier development programs do not do enough to meet these goals. Auditing suppliers once per year to determine if they've met certain on-time-delivery and quality goals will not actually fulfill the purpose of a supplier development program. One could call this type of work "supplier checking and verification" rather than "supplier development." Supplier development requires much more work than auditing and checking does.

Supplier development is actually developing suppliers in much the same way employees are developed. How should an organization develop its employees? Well, this question might open an entirely different can of worms in that many organization don't do a very good job of developing employees either. However, those companies that do well in this area provide the training, tools, and incentives that will make them successful. In short, they invest in their employees because they know that great employees are what make companies great. It should come as no surprise, then, that great suppliers make supply chains great.

Thus, a supplier development program must be aimed at improving suppliers performance, not browbeating them into charging less or simply auditing and rewarding them. Instead, supplier development is all about providing suppliers with what they need to be successful in the supply chain. Two of the most important functions of a supplier development program are:

  • Providing information about products, expected sales growth, etc. Poor communication is one of the biggest wastes with a lean supply chain. Lack of information translates into additional costs (usually in the form of just-in-case inventory). Suppliers need to become extensions of their customers.
  • Training in the application of lean and quality tools. Asking suppliers to drop their price without giving them the know-how to lower their costs through lean implementation is not sustainable long-term. In other words, this will drive suppliers out of business, which goes against the purpose of supplier development.

If suppliers had more information about the entire supply chain and had a true lean transformation underway, they would become more profitable and provide a better quality ane lower-cost product on-time.

12 comments:

Anonymous said...

It's good article very precise that distinguish between auditing/checking and supplier imrovment in supplier development

Eagle Kumar said...

The challenges in SD projects is getting supplier top management support and involvement.This is the barriers faced by most companies praticing supplier development programme

Suresh said...

I have developed a supplier matrix sheet and I have identified whihc suppliers have to be monitored/developed/sustained/consolidated. However, can anyone advise on what should be the good tools that can be used in the SD programe?

Darren Dolcemascolo said...

There are many tools that can be used as part of a supplier development program. You might begin with a set of KPI's/metrics. After you identify key metrics, you can begin identifying yearly goals for each of these metrics and then activities aimed at reaching the goals. Tools like joint kaizen activities, site audits, supplier associations, supplier summits, etc. can be used, but the first step is identifying the goals and then selecting the right tools to help you meet your goals.

Suresh said...

TQ Darren,
I have already created a baseline - key matrics. However, I am divided between yearly audits and supplier developments. The question that is always thrown to me is - Is the yearly planned audits a must and value added for sustainability & monitoring- medical device ISO13485?

Suresh said...

What should be the weightage between SD & yearly planned supplier audits?

Darren Dolcemascolo said...

Each key supplier should be audited regularly, though not necessarily annually. There is not a huge return on investment for audits. Development activities such as joint learning, joint continuous improvement events, supplier summits, implementing supplier associations offer more value than audits alone.

Lindor said...

Our suppliers see SD as a threat and are very reluctant to engage, any suggestions on an opening approach. I am a newly appointed SD manager, my company recognises the need but are new to the technique.

Darren Dolcemascolo said...

Supplier relationships are similar to employer-employee relationships in the sense that trust must be built over time. Begin with a set of KPI's and goals, and then "sell" the concept to key suppliers as something that can give them a competitive advantage. The benefits of improvements made should be shared. Trust can also be built through providing value to the supplier: for example, invite the supplier to participate in some in-house training on a relevant topic.

Ricardo Garcia said...

In your perspective, what are the steps to follow to set up a system for SD for a large company that does not carry over this strategy yet and that do has a lot of Supplier issues.

Darren Dolcemascolo said...

Ricardo, What do you mean by a company that does not "carry over this strategy?" I am assuming that you are trying to do SD for a company that has many supplier issues but does not want to engage suppliers in a collaborative way or build trust with them. Is this correct?

Wybrand Ganzevoort said...

Darren, excellent post. In South Africa Supplier Development is becoming quite the buzzword, but the focus is not necessarily on improvement in terms of the buying organisation, but rather improvement in terms of job creation.

For more information please see: www.collectivevaluecreation.co.za

With this in mind would performance metrics look mostly at the Service Level Agreement or would you rather measure high level organisational performance?