Do Your Underperforming Suppliers Need an Intervention?
- On 11/29/2019
There are practical steps you can take to improve critical suppliers' delivery performance
Let me be blunt: Sometimes it takes two to tango when it comes to maintaining the health and performance of your supply chain. This is particularly true for larger companies that have smaller suppliers who can be dramatically affected by the way orders are placed. In some cases, you can help underperforming suppliers best by first optimizing your internal planning and procurement practices.
Once you’re sure that your own house is in order, you may then choose to take active measures with key suppliers who are adversely impacting your ability to service customers. Staging a supplier intervention in an expeditious, constructive, and effective way will help enable quick-turnaround improvements and kickstart reliable supplier deliveries.
Problematic Purchasing Planning and Execution
One of the most important levers a manufacturer or distributor has is to establish effective customer-driven work priorities throughout the supply chain. Adhering to the priority in which manufacturing operations, raw materials, and/or products must be provided is one of the single most important determinants to successfully meeting customers’ schedule requirements.
If your production and delivery schedules are volatile and constantly change, then you lose the basic ability to set priorities that enable on-time performance to be self-realizing. The following three-minute video graphically demonstrates how schedule volatility – both for internal manufacturing resources as well as external suppliers – is an essential prerequisite for on-time performance and sound supply chain management.
You can be certain that fundamental planning, scheduling, and execution problems exist if your distribution or make-to-stock organization holds regular weekly meetings with key suppliers to track the latest schedule and forecast changes. Make-to-order businesses are impacted even more by schedule volatility because they do not have the benefit of finished goods inventory acting as a buffer. As a result, make-to-order manufacturers that suffer from schedule volatility are unable to convey stable effective requirement dates to their raw material suppliers as well as to their internal manufacturing resources.
Taking Remedial Action with Underperforming Suppliers
Once you are assured that your internal planning enables purchase orders to be placed and managed in an effective way, then we can focus on your suppliers’ ability to meet your on-time delivery objectives.
Several possibilities exist as to why a key supplier may not be able to provide reliable deliveries, including:
- Insufficient capacity (e.g., equipment, staffing)
- Insufficient quality control
- Internal planning and scheduling problems
- Excessive engineering changes
- Poor inventory planning
- Excessive customer-directed changes
In the end, there are three options to resolving an underperforming supplier:
- Notify the supplier of shortfalls and hope that they are able to resolve it on their own
- Work with the current supplier to improve performance
- Switch suppliers (including pursuing a “plan B”)
In some cases, the high cost and risk of switching suppliers may make working with the supplier an attractive option. Unfortunately, many suppliers lack the internal expertise to effectively identify and address their problems.
In some aggravated cases, a major customer may send in the “leg breakers” to an underperforming supplier with the goal of expediting shipments. However, expediting alone is rarely effective and lasting if fundamental problems exist.
Staging a Supplier Intervention
An expeditious examination of the supplier’s executional challenges is what is really needed to clearly understand the current state and make the necessary quick-turnaround improvements to enable reliable deliveries. The goal in this case is not to comprehensively improve the supplier’s whole business, but to narrowly identify and quickly target those issues that directly affect the ability of the supplier to meet your delivery requirements.
In the majority of cases, the customer can commission a cursory investigation of the supplier’s operation to be performed within a few days. The objective of this initial due diligence is to identify specifically what practical operating challenges exist and what the possible remedies are. The customer and supplier may then choose to review the results of this preliminary effort to decide what corrective actions to pursue over the following weeks that will provide the most immediate benefit.
Altemir Consulting specializes in providing a broad range of practical operations and supply chain management services for manufacturers and distributors. Contact us to discuss how we can help improve your supply chain management to ensure the reliable performance of key suppliers.