When you are focused on our own business processes, it can be too easy to not to take into account the processes of other companies on which you rely. I recently experienced a potentially catastrophic situation with a client, and their story is worth sharing.
The client started receiving order cancellations from customers whose orders were weeks past due. A special steel that was required to build the products for fulfilling those orders had not been delivered by a specialty steel supplier, and they continued pushing out their delivery date.
When I questioned the head of purchasing on why he tolerated this supplier’s performance, he replied “They have the lowest price by far for this product, their deliveries used to be frequently on time, and I know we are their number three customer for this product”. Apparently, something changed.
We arranged a meeting with the supplier and in the discussion the supplier revealed two previously unknown factors that had a direct impact on our client. 1. Our client received high volume discount pricing for their modest purchase order quantities because the supplier only fulfilled those orders when added to the high volume orders from their number one or two customers. 2. The number one and two customers were now ordering less frequently which caused the measurable delivery delays.
Had the supplier’s constraints been understood at the time of the first purchase, it would have been easy for their salesperson to proactively notify our client’s buyer of the less frequent manufacturing runs. Also, if known upfront, this could have been a checking point in the periodic buyer / supplier review meetings. With an advanced notice, the buyer and management would have had the opportunity to consider proactive options like: A. Maintaining the current stocking levels but purchase those quantities sooner to accommodate the longer lead time. B. Maintain high inventory balances. C. Establish a relationship with the vendor who can provide the product in short lead times (albeit at a higher cost) or a combination of both. No matter what solution they chose, they could have prevented losing customers.
The takeaway? It’s up to you, the buyer, and the purchasing company, to understand the “how” and “why” your supplier will be capable of delivering the materials or products you need to satisfy your customer demands.
To start, be sure that you are communicating to your suppliers your product needs such as quality expected, response and lead times, on-time delivery performance, documentation requirements, packaging and shipping requirements.
Here are a few questions you can ask your suppliers to start gaining that understanding.
- Are the skills and infrastructure required to produce the product you are asking your supplier to provide at the core of their competency or somewhere closer to the fringe?
- Are your product specifications, tolerances, documentation requirements… common or within industry standards, and are they typical requirements for this supplier?
- Who are the bread and butter customers for this supplier? Would you be one of them?
- What other markets does this supplier serve? Do these markets have foreseeable events that could impact this supplier and consequently the supply of your product?
- Does this supplier’s location, facility, operation, process, equipment, people, experience, and culture align with their quoted product, price, quality, responsiveness, lead times, and advertised customer service levels?
There are many supplier / customer relationships within a supply chain that are required to produce an end user product. The true alignment between a supplier’s capabilities and a customer’s needs is critical no matter where they reside within a supply chain. No company is an island. These alignments help ensure cost effective and on time delivery of quality materials and products, and this is the best insurance for any company’s future.