It’s in your best interest to select and work with suppliers in ways that will provide for high quality.
Supplier performance is about more than just a low purchase price:
- The costs of transactions, communication, problem resolution and switching suppliers all impact overall cost.
- The reliability of supplier delivery, as well as the supplier’s internal policies such as inventory levels, all impact supply-chain performance.
It used to be common to line up multiple suppliers for the same raw material, over concern about running out of stock or a desire to play suppliers against one another for price reductions. But this has given way, in some industries, to working more closely with a smaller number of suppliers in longer-term, partnership-oriented arrangements.
Benefits of supplier partnerships include:
- Partnership arrangements with fewer suppliers mean less variation in vital process inputs.
- If your suppliers have proven to be effective at controlling their output, you don’t need to monitor the supplier and their product as closely.
Establishing an effective supplier management process requires:
- Support from the top management of both companies involved.
- Mutual trust.
- Spending more money now to develop the relationship, in order to prevent problems later.
The manufacturing industry is in a special situation: Much of what manufacturers purchase is then incorporated into their products. This means there is a higher inherent risk, or potential impact, in the manufacturing customer-supplier relationship. For this reason, manufacturers often develop detailed supplier-management processes.
Many of those same methods have been adapted by non-manufacturing organizations. This is especially true of partnerships and alliances, which are becoming a widespread way of sharing expertise and resources -- and spreading risk -- in a complex global environment.
Excerpted from Duke Okes and Russell T. Westcott, editors, Certified Quality Manager Handbook: Second Edition, ASQ Quality Press, 2001, pages 245-246.