Doing
Your Homework with Suppliers and Industries
Make sure you dig up the standard
industry references about industries and do your homework on which suppliers or
companies are at the top in the industry. In most industries there are three or
four top companies and although there are differences on many routine items or
commodities you cannot go very wrong by picking one of the top three or four as
your supplier. Do not over procrastinate on these types of items. Top
management needs to understand one important precept. Suppliers can make or break any business or
business plan. According to Dr. Deming
defective materials or equipment not human error or the defective process
causes over 80% of quality variances.
Suppliers obviously play the key role in achieving high quality. Suppliers need to be treated as stakeholders
not adversaries. World-class suppliers
can become a company's very best competitive weapons. They play the quintessence role in reducing
time to market.
The
major challenges of the next century include maximizing supplier contributions by
focusing on supplier partners and on continuous improvement. The focus must be on quality, flexibility and
reducing time to market. Ultimately
company performance is judged by the paying customers or what I call the final
end-user customer. Typically purchasing
gets totally sidetracked and thinks that internal company customers are their
real customers. Nothing could be further from the truth. These internal customers often whipsaw
purchasing into doing stupid human tricks to satisfy their exaggerated needs.
Purchasing is not an unctuous service organization at the beck and whim of
internal customers. It is the chief
revenue center for the corporation. It
should in conjunction with sales find out exactly what the paying customers
want not boisterous internal customers.
Internal customers often just confuse the true end customer needs
issue. Supply management professionals
need to focus on what specification the ultimate paying customer wants; not the
false specifications of engineering, manufacturing, shipping accounting,
etc. Examine if their needs actually add
value. This is a heck of a lot easier
said than done. Often these internals
customers are superb whiners. This is one reason why companies spend millions
on customer research and focus groups. Many internal departments think they are
the chief customers. Worse, they all
think they know what the final customer wants. They are usually dead wrong.
An initial internal customers’ needs assessment checklist
should include things like what are people's expectations from purchasing. Do not expect any major insights here. Often their expectations are mired in
traditional thinking and their self-serving tunnel vision requirements. Purchasing needs to understand what they are
evaluated on and especially how the score is kept. Price reductions are often only five to ten
percent of the savings potential for a company.
New reporting relationships must be discussed. A new supply chain efficient organization
must be proposed and agreed upon in advance.
Everyone needs to get more involved in the design phase of products and
more importantly with sales just in order to get to know the paying customer up
front and personal. Supply managers need
to lead the charge in judiciously challenging what the customer really
needs. A customer resource assessment is
required. This is not a process that can
be done part time. Unless people and the team are completely dedicated to the process
it will fail. Resistance to change will
be fierce and harsh. One way to overcome
the resistance is to insure that communications of changes are open and
outstanding. It is important to wisely
choose a very first project or supply chain task. Initial success in this project is critical
for future success. Success does snowball.
Often it is wise to pick the process that is the rift with redundancy and a
clear easy victory when basic streamlining is accomplished. The supply chain team must be trained in the
process and a facilitator is highly recommended. The team needs to prepare to be under attack
and be aware of the rule of change. In
order to effect a change in most organizations you must adhere to the seven
times rule. A change must be presented
and driven for at least seven times and explained seven different ways in order
for it to start to take hold in an organization. Remember people have distrusted purchasing or
supply chain personnel for years.
One
of the first supply chain projects that we did at a large chemical company
involved frequently used MRO parts by the maintenance folks. Highly paid
maintenance personnel were driving in pickup trucks to go to a central
storeroom to pick up basic and frequently used parts. Usually they traveled in
team of two to get the parts at the central storeroom. We were a chemical company and our expertise
was not in storeroom or MRO parts management.
We started a supplier search for distributors who were experts in
management parts and storerooms. We decided to basically outsource the management
of these frequently used parts to the distributor. They examined our storeroom
data, provide us software and soon discovered the one hundred most frequently
used parts by our maintenance folks.
They then set up many free issue or mini storerooms
throughout the large chemical plant grounds. Our maintenance folks traveled or
walked to these areas to get the parts that they needed. The distributor
maintained and restocked the areas. The
distances were much shorter or decentralized. The maintenance people set up a
steering committee with the distributor to review usage and add or subtract
parts to the mini storerooms. The process was greatly simplified and the
maintenance people soon developed a high degree of confidence in the distributor and the streamlined system. Then the distributor offered to
reorganize our storeroom and barcode all the parts at no charge. We agreed.
In another month a shocking development occurred. Many of our maintenance people had previously
had no confidence in our current storeroom system. We publicized a return any
extra parts week to the storeroom with no questions asked. This was run much
like a fine free day at your local library to return overdue books. Our
maintenance people returned over two million dollars’ worth of bogey or just in
case inventory that they had been squirreling away in their toolboxes and other
areas. They did this because they had zero confidence in the old system. Our new supplier accepted the parts back and
gave us a large credit for the parts that were returned and still usable. The distributor
kept us abreast of any new storeroom management techniques and technologies
including RFID. We developed a long and
lasting relationship with them that was the model for our other chemical
plants.
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