Initiatives that involve your suppliers usually are meant to benefit you, since you are the owner of the initiative. Before embarking on technology adventures such as the Internet of Things (IoT), blockchain, and various forms of artificial intelligence, the various sourcing, procurement, and supply chain professionals would be wise to think more about the benefits to their supply base versus only to their organization. In this article, the term supply base or supplier is meant to represent material/component suppliers, sub-contractors, contract manufacturing organizations, co-manufacturers, co-packers, third- and fourth-party logistics organizations, and any other external entity that adds value to a business and thereby adds value to its customers.
What’s in it for them?
Before we discuss any form of technology or business process with suppliers, let’s get grounded. What are your suppliers really doing for your business? What value are they adding and more importantly, how much more value can they add? Based on this knowledge, how can you help them increase that value-add?
Many suppliers are handicapped by not knowing, with enough level of detail, what you need from them, where you need it, when you need it, and how much you need. They also need enough advance notice to execute the activities they need to do to meet your needs more efficiently.
Supplier: “We do not know what you need, so we hedge with excess inventory and reserve capacity.”
You: “About how much inventory?”
Supplier: “Thirty days, which includes raw material, work-in-process, and finished goods.”
You: “We currently provide you 60 days notice of when we need your materials, components, or capacity. If we provide 75 days, will that help?”
Supplier: “We can probably remove one day of our overall inventory.”
You: “Can we split the savings? You keep that half day of inventory savings and pass the other half day to us?”
Understand that the real discussion will more complex. However, the purpose is to drive a conversation, competency, and culture of collaboration. Regardless of the response, the conversation can open doors to other areas of collaboration and unleash other areas of value.
Areas to explore joint-value opportunities
Can your supply base perform a better job managing its capacity with better, earlier, and richer information? Can it reduce changeovers (a large area of capacity loss for many manufacturers)? How can your suppliers acquire their raw materials more reliably, with better quality, and on time? If your suppliers’ materials are on time, will they improve their on-time-in-full (OTIF) metrics to you – and thus to your customers? Can supplier-OTIF (SOTIF) help you with your customer-OTIF (COTIF)? This is crucial to retail suppliers, where OTIF guidelines continue to become more stringent, and penalties for violating these guidelines are increasing.
A hidden area of value in supplier relationships is quality. Are you and your supplier performing similar quality inspections? Does that quality inspection cause you to hold an extra one or two days of supply, tying up more working capital? If the supplier performs the quality analysis/inspection and includes the documentation with the shipment, can that eliminate or reduce the need for quality inspections on your end, thus reducing the extra days of supply?
These examples of situations are meant to stimulate more strategic thinking about your suppliers and selling your supply base on building a more collaborative relationship. Each industry and business can be different, and different suppliers and supplier types can offer diverse areas of value. The key takeaway is to ask your suppliers how they can benefit – and how your organization can as well.
Learn from the experts: “How To Build A Customer-Centric Supply Chain: A Q&A With Data Mastermind Kirk Borne.”