Avoid the Pitfalls in Supplier Development

This article analyzes survey data to explore how companies with specific supplier development programs overcame common pitfalls in assisting their suppliers improve their performance. The authors provide a process map for deploying supplier-development initiatives. After identifying critical commodities and suppliers, a cross-functional team meets with top managers at the supplier firms to discuss areas of improvement as well as key metrics and cost-sharing mechanisms needed to evaluate the success of the effort. Lastly, firms need to monitor and modify their supplier development strategies, as appropriate. The survey data indicate that organizations generally experience three types of pitfalls, mostly in the final stages of the process.

Supplier-specific pitfalls stem from a lack of initial commitment. Companies can avoid these by using evaluation systems that compare measurements and performance among suppliers, holding kaizen events at supplier sites, identifying cost-saving opportunities through target pricing, and designating a supplier employee to ensure that buyer-supplied training is put into practice. Tying a supplier's performance improvement to receiving future orders is a particularly dramatic way to get the attention of managers at a supplier. Some buyers also offer their resources to suppliers, such as providing personnel support for some period of time to improve operations or building training centers for supplier use.

Buyer-specific pitfalls also stem from a lack of commitment. Consolidating purchases to one or a few suppliers is one approach to creating the volume needed to justify investing in a supplier-development effort with the remaining suppliers. Examining how these suppliers impact the quality of products or using total-cost-of-ownership data can yield further proof of the benefits of supplier development.

Buyer-supplier interface pitfalls originate in the areas of trust, alignment, and communication. Although written contracts may be important, some buyers rely more on close relationships rather than on contracts to build trust. Others use "expectation road maps" to tell suppliers where they are going and better ensure buyer/supplier alignment. Financial incentives, "designed in" supplier products, and expected contract renewal are also incentives for gaining a supplier's commitment to a supplier-development effort.