January 30, 2016 / best practices, continuous improvement, Cost Management, LIT, operator training, productivity, strategic planning
As ball and roller bearing manufacturers continue to search for new ways to optimize their operations, many are starting to take a fresh look at their supply chain. Instead of simply treating their supplier relationships as a series of business transactions, they are treating them as a valuable part of their business strategy—and with good reason. According to a 2013 Global Supply Chain Survey from PwC, better supply chain efficiency has a measurable impact. In fact, the PwC report found that companies who consider supply chain a strategic asset achieve 70% higher performance.
Define the Relationship
Of course, there are many ways to strategically manage a supply chain. According to an eBook from the LENOX Institute of Technology, a good starting point is to clearly identify and define your current supplier relationships. Paul Ericksen, author of IndustryWeek’s “Next Generation Supply Chain” blog, suggests dividing supplier relationships into four categories:
- Strategic suppliers are those suppliers that provide services or products that expose a purchaser to excessive cost or order fulfillment risk.
- Key suppliers are those where alternatives exist, but resourcing would expose a purchaser (assume OEM) to above average cost or order fulfillment risk. Key suppliers are less “strategic” than strategic suppliers.
- Approved suppliers are those where alternatives exist and resourcing exposes an OEM to average cost and order fulfillment risk. Approved suppliers are less strategic than key suppliers.
- Basic suppliers are those where alternatives exist and resourcing exposes an OEM to only routine cost and order fulfillment risk. These suppliers are non-strategic.
Position the Relationship
According to Ericksen, managers need to make sure they categorize their suppliers carefully. While it might seem logical to throw suppliers of commodity products in the “basic” category, these types of suppliers can actually be strategic (“approved” or “key”) depending on how critical they are to your operation. “It is important to be highly disciplined such that suppliers are categorized solely based on the potential for negative financial impact that resourcing from them presents, not by the type of products they supply,” Ericksen says.
Once you have identified strategic suppliers, the next step is to position those relationships so that they bring value to your company. A white paper from the LENOX Institute of Technology offers a few best practices:
- Schedule on-site visits. Expect your prospective supplier to assume a “partner” role from day one by focusing more on service than on the sale of the product. To facilitate this relationship, start by asking for an on-site needs assessment. This gives you the opportunity to discuss your business goals in person, as well as providing the vendor with a full overview of your operation.
- Do your homework on supplier claims. While many companies often promise unmatched service and technical support, the key is to look for companies that provide resource allocation metrics that support their claims. Do they have adequate field coverage? What is the tenure and continuity of their support team?
- Include training in your purchase agreement. Most suppliers should be willing to provide some level of value-add training as part of the purchase agreement. This is especially important when it comes to your equipment and tooling providers. No one knows your production equipment better than the people who designed it, and they should be willing to share that expertise with you.
- Expect thought leadership and self-service tools. Industry-leading partners should be able to support your business by providing informational and educational materials, as well as practical tools and services. You can and should rely on your supplier to be an industry thought leader that provides a steady stream of valuable industry trends data, operational strategies, and technical product information.
Make it a Win-Win Relationship
Like any relationship, it is important to remember that there are two parties involved. An article from Gallup stresses the benefit of intentional supplier engagement. “Companies must create a different set of conversations that aim to emotionally engage their suppliers and to become a “customer of choice,’” the article states. “Customers of choice gain unique benefits, such as access to the supplier’s best people, access to the resources required to serve account relationships, first access to the supplier’s latest technological advances, more favorable terms, shared risk taking, and priority allocation of resources or production capacity in times of scarcity. Being a supplier’s customer of choice creates a vital strategic advantage.”
Ball and roller bearing leader SKF, for example, engages its suppliers by awarding its top suppliers and then holding an annual SKF Supplier Day to recognize their contributions. As described here, suppliers are recognized based on nine categories.
In the end, the goal is to build a relationship that benefits both you and your suppliers. How can you create more of a win-win relationship with your supply chain?
To read more about the benefits of value-added supplier relationships, including some key areas where suppliers can help, download the eBook, Five Performance-Boosting Best Practices for Your Industrial Metal-Cutting Organization, or check out the white paper, Managing Your Blade Manufacturer Relationship.