3 Ways Machine Shops Can Build Value into Supplier Relationships

July 20, 2016 / , , , , ,

Most manufacturing organizations agree that supplier relationships are one of the key building blocks of success. While there are still some companies that base their supply chain on price, many industry leaders believe that a strong supply chain can (and should) be about more than the most affordable product or service.

In an interview with Modern Metals, Aviva Leebow Wolmer, CEO of Pacesetter, stresses that cultivating strong ties with suppliers is critical to achieving the metal service center’s goals—goals that go far beyond price. “Pacesetter believes in the power of teamwork, where the entire supply chain comes together to focus on reaching goals,” Wolmer tells MM. “It’s easy to provide a low-price model to try to buy business away from the competition, but not every company is built to offer the level of service, partnership and trust that Pacesetter’s customers and suppliers are accustomed to. We want our suppliers and customers to feel they are a part of the Pacesetter family.

“Facilitating long-term partnerships helps to create value and offer advantages that may not be available if we focused only on price,” Wolmer continues. “We promote collaborative efforts up and down the supply chain and find long-term solutions to satisfy everyone’s needs.”

Other companies are taking a similar approach when building supplier relationships. For example, American Axle & Manufacturing (AMM), an automotive parts supplier featured here in Supply Chain World, works closely with suppliers long before price is even discussed.

“Our goal is to source several years in advance by working on new technologies and bringing suppliers in before we talk about price,” explains Jake Stiteler, AMM’s chief procurement officer. “We look at them to find the best technology and delivery, and we look at advanced cost modeling to agree on what prices should be. We’ve flipped the spectrum by having technology and capabilities drive the process, and by working with prequalified suppliers on finding ways to take cost out upfront instead of negotiating pricing at the end.”

Of course, in today’s market, price will still be important for machine shops and other industrial metal-cutting organizations looking to stay competitive. However, there are ways organizations can build more value into their supplier relationships. An eBook from the LENOX Institute of Technology lists three strategies to do just that:

  1. 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.
  2. 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.
  3. 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.

In addition to the above three strategies, managers should also do their 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? What can they bring to your shop that other suppliers aren’t offering? Therein lies the value.

Ultimately, the goal for any manufacturer should be to turn vendor relationships into strategic partnerships. By looking beyond price and by focusing on value, machine shops can develop a strong supply chain that can have a significant impact on the bottom line.