Supplier Development: What It Is,
And How To Manage It
IN THIS ARTICLE
Supplier Development Goals
Supplier Development Process
Supplier Performance Improvement
Benefits of Supplier Development
Communication is Key
Supplier development is the process by which a company identifies and selects
suppliers who can provide the products or services required to meet its specific
needs.
Supplier development activities may include supplier interviews, supplier surveys,
supplier audits, and supplier selection criteria development.
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Supplier development is an important part of a company’s overall supply chain
management strategy and is essential for ensuring that the right suppliers are
selected to deliver quality products and services.
Supplier Development Goals
Supplier development goals are typically to increase quality, reduce costs,
shorten lead times, and improve delivery performance.
For the best results, a company should approach supplier development
strategically and systematically. It’s about going above and beyond current
contractual requirements to develop stronger supplier relationships.
The goal should always be to improve the relationship with suppliers. This can be
done by working together to identify areas where improvement is needed and
then developing a plan to address those areas.
Additionally, companies should strive to create a culture of continuous
improvement within their supplier base. This means encouraging suppliers to
identify ways they can improve their operations and then working with them to
make those improvements happen.
Companies should also aim to build trust with their suppliers. This can be done by
being transparent and honest with suppliers, as well as by sharing information
and ideas freely.
By following these tips, companies can develop strong relationships with their
suppliers and create a culture of continuous improvement throughout the supply
chain.
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Supplier Development Process
The supplier development process is a key component of an organization’s
procurement and supply chain management operations. It can be used to improve
the quality and performance of an organization’s supplier base, as well as to
identify and assess potential new suppliers.
1. Assess Supplier Capabilities
When sourcing suppliers for goods and services, it is important to assess
their capabilities in order to gain a competitive advantage. Capabilities
can be assessed by evaluating the supplier’s performance in three areas:
delivery, quality, and price.
Delivery is assessed by looking at the supplier’s track record for meeting
deadlines and delivering on time.
Quality is evaluated by assessing the supplier’s track record for producing
high-quality goods and services that meet or exceed customer
expectations.
Price is evaluated by assessing the supplier’s track record for offering
competitive prices without sacrificing quality or delivery.
By evaluating a supplier’s capabilities in these three areas, organizations
can make informed decisions about whether to do business with them and
what type of business relationship to establish. This information can help
organizations to identify potential areas where they could improve their
own operations.
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2. Plan and Execute Improvement Activities
All successful supplier development programs work by systematically
going through the supply base to plan and execute improvement
activities.
Evaluate Your Supplier Base
First, look at the number of suppliers your procurement teams
rely on every day. Is there room to remove dead weight? Do you
have enough supplier diversity to protect your operations from
unscheduled downtime in the event of an emergency or other
supply chain disruption?
Meet with Suppliers
Schedule time with each of your most crucial suppliers to discuss
areas where they can improve, and what initiatives the two of you
can collaborate on to monitor improvement.
Consider Implementing Cost Reduction Teams
These teams are typically composed of individuals from different
areas of the organization, such as purchasing, engineering, and
quality assurance. The goal of these teams is to work with
suppliers to identify ways to reduce costs and improve quality.
Establish Supplier Quality Requirements
These requirements can be used as a guideline for suppliers when
manufacturing products or providing services. They can also help
to identify problems early on and prevent them from becoming
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bigger issues down the road.
Use Supplier Performance Audits
These assess how well suppliers are meeting certain quality and
delivery requirements, using agreed-upon metrics and key
performance indicators (KPIs).
3. Follow Up and Measure Improvements
To ensure customer satisfaction, always schedule a time to follow up with
your suppliers and measure improvement. Part of successful supplier
relationship management is communication – making sure everyone is on
the same page not just in the short-term, but over the long haul as well.
If after mentoring the supplier you find that things aren’t working the way
you expect, revisit the conversation and make adjustments. If things are
wildly different from what you planned, you may need to find another
supplier.
A clear process that uses a systematic approach with all suppliers makes it
easier for procurement teams to spot problematic suppliers and those that are
worth investing in.
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Supplier Performance Improvement
You, as a buying organization seeking to maintain competitiveness, should always
seek continuous supplier improvement. This is true all the time – whether you’re
launching a new product, or trying to boost sales of existing ones.
Quality
Quality management is a crucial part of business strategy. If you’re
dealing with subpar raw materials, it’s impossible to build a quality
product your customers will love. If your suppliers are sourcing poor-
quality materials, you can’t produce quality.
If you mention that you’re struggling with the quality of what the supplier
is offering you and that you will go back to the supply market to find an
alternative, you may find the supplier is willing to make changes to their
business processes to keep you as a client.
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Cost
Cost is a huge driver of social responsibility and sustainability, which is
crucial to keeping customers happy. Today’s consumers want to do
business with brands that are aligned with their personal values. If your
brand is all about sustainability but lacks the diverse suppliers to prove
your operations management is handled sustainably, then you risk
upsetting your customer base.
Finding new sustainable suppliers may not make sense for you, and that’s
when you should aim to partner with your existing base on more
sustainable business practices to help one another.
Keeping costs down is important for your profit margin, but sometimes, it
is worth it to pay more for quality and on-time delivery.
Work with your suppliers to find ways to improve costs – whether that
means ordering more items or ordering in bulk, or ordering a more cost-
effective version of the same product. Try negotiating early payment
discounts to lower costs without sacrificing quality.
Delivery
It doesn’t matter if your supplier has the highest quality products if you
can’t get them to your production team when they need them. If you’re
stuck with a long lead time and your operations come to a screeching halt,
then you have no choice to but to look to alternative suppliers.
Suppliers should seek to improve delivery times by offering a variety of
shippers to work with, and shipping from multiple locations so orders
always come from the warehouse closest to you.
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Technology
Technology is expensive, but can greatly improve productivity and
efficiency, which helps improve service quality and reduce costs in the
long run.
Communicate with your suppliers about the technology you use and
expect from them. Integrations and automation help improve the process
for everyone.
Benefits of Supplier Development
When implemented properly, supplier development programs offer your
organization numerous benefits.
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Improved Quality and Cycle Time
Working with a supplier to improve product or service quality often helps
reduce cycle time, and ensures they are more responsive to their
customers. Since quality and cycle times are major risk factors to
performance, this is a key area to focus on.
Reduced Cost
You may only see benefits in the short term if you demand year-over-year
cost reduction. Cutting costs without operational improvement isn’t a
sustainable approach to business as it may increase supply risk.
Adequate supplier development helps suppliers eliminate waste from their
businesses, which translates to savings for you. When working with an
offshore supplier, you may need to invest time and other resources ahead
of time to avoid risks while reaping benefits, to ensure you get better
long-term results.
Better Business Alignment
Working together improves overall business alignment. Sharing goals and
strategies with one another helps suppliers become more aware of what
you as the customer needs so they can be more responsive.
Understanding things from the supplier’s perspective ensures that you
can adapt your processes to be more collaborative, showing that you
support their business as much as you need them to support yours.
This translates to more understanding and trust between the two parties.
As a result, suppliers may introduce you to new products or service ideas
before they share them with everyone else – giving both of you a
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competitive edge.
Communication is Key
You won’t be able to ask suppliers to move mountains if you don’t have a big stake
in their company. If you’re one of the smallest contracts and they won’t lose much
by sending you to another supplier, you don’t have leverage.
That’s why communication matters. Whether you communicate via email or a
supplier portal, the reality is that you can’t use a mass, generic approach if you
want to really make a difference. Have your account managers speak directly to
the supplier managers, with personalized communication.
Set forth clear expectations for both parties, including dated milestones and
deliverables you can measure. This makes it easier for everyone to follow.
If you want to see supplier change, you must build trust, and the most effective
way to accomplish this is with two-way communication. Share information. Give
suppliers visibility into your product pipeline. Remain open and transparent.
Strong supplier relationships are not built overnight. They come with time and
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consistent effort. A supplier development program can help facilitate mutually
beneficial relationships.
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