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Supplier Management – Key to a Resilient Supply Chain


Over the course of the year, I have been focused on these 3 Capabilities you need in 2023 to not only manage your supply chain but create supply chain resiliency.

Supplier Management Program – (Topic for today)
Inventory Management – (Find my detailed article here on my blog)

Find that complete article on Capabilities in 2023 here on my blog.

Supplier Management Program

Not all suppliers are created equal.  Having a program/process to manage your supply base is critical to meet cost and assurance of supply objectives.

The prevailing thought is to classify your suppliers and items into ABC/XYZ categories and while helpful in setting inventory goals, it may not be sufficient to stratify how you should be managing your suppliers.

Below are 3 categories for evaluating your supply base and what processes should be in place to support your goals.

Commodity Items – These items are readily available in the market from multiple sources.  Costs are relatively stable, and your business should have identified multiple sources to take advantage of specific cost competitive factors.  Also, these items are considered “off the shelf”, these are not parts/components that you designed and would not require a Bill of Material change if you sourced from multiple suppliers.
There is no lengthy qualification period if you must source from new suppliers.

These suppliers typically can be managed through PO transactions or even blanket PO’s, an occasional phone call and possibly an annual review.

PO’s can be executed through a normal MRP process and should be relatively routine. 

Creating multiple sources for these items is key to assuring supply.

Critical Suppliers – These suppliers can be characterized as requiring more management due to the nature of the item or component.  It is likely these suppliers have developed a specific capability you need to support your business.  Custom packaging is likely in this category.  You may or may not have multiple sources depending on the design, requirements, and investment to get them ramped up.

These suppliers require a low to medium investment to qualify.

These suppliers need more support from you as it relates to forecasting and overall cost/assurance of supply management.

You should be sharing MRP output/forecasts on a periodic basis – monthly at a minimum.  You may have developed a Vendor Managed Inventory process, where the supplier bears some burden of carrying safety stock and simplifies your business terms and transactions.

You should be receiving some type of production schedule/PO commits on a regular basis and have visibility into their inventory position.

Quarterly business reviews – (could be no more than an hour) is best to ensure you are communicating changes to your business needs and any operational changes your supplier may be experiencing.

These items are not going to have many sources of supply or may not even have many options to source new suppliers.

Overall, you should take a much more collaborative approach, ensuring they understand your business needs (forecast) and you have invested in understanding their operations.

Strategic Suppliers – This category includes your most strategic suppliers to ensure business success.  Likely makes up a significant portion of your material costs and could be single sourced.  Depending on volume, you may have developed a second source for risk mitigation.  Qualifying these suppliers is a major investment.

Mindset = you are embedded in their business and are taking the necessary actions to provide them with the greatest opportunity to support your business.

Suppliers in these categories – Contract Manufacturers, Co-manufacturers, Specialty processing, custom designed components/formulas, 3PL’s, Integrated Circuits/chips and other electronics. 

You regularly provide forecasts and may even have a weekly demand/supply review.  You have visibility to inventory and sharing your inventory position periodically.

Quarterly reviews are a must – where you discuss upcoming demand, open PO’s delivery performance, quality and have a set cycle for negotiating costs.

The bottom line is that these suppliers require a formal approach ensuring supply is available at the right cost.

Benefits of a Supplier Management Program

Assurance of Supply – One of the key benefits of having a formal supplier management program is to manage supply more effectively.  As a customer of your supplier – helping them manage their business with forecasts, reviews, and business updates – lets the supplier know you are a partner in the process.  No forecast, poor PO/terms management and lack of visibility into your business creates uncertainty for your supplier.  Customers that can eliminate that uncertainty are in a better position to ensure supply and execution.

Cost management – Let’s face it – suppliers that are well informed of your business needs and value collaboration are going to be more receptive to cost negotiations.  While it may not guarantee a lower cost, you will be able to influence and better manage the cost changes in your industry if you are in contact with your supplier and help them manage their business.  If your only conversation is when it is time to negotiate new costs – then the likelihood of you securing cost reductions is low.

Quality Management – Suppliers perform better with consistent feedback on quality.  Suppliers should be measured on delivering quality components and inventory.  Managing quality and eliminating the cost of poor quality is another benefit of having a supplier management program.
Continuing to support and develop relationships with your key suppliers is often a critical measure of success – especially during uncertain economic conditions.

If you do not have a formal supplier management program – reach out and we can outline the 1st next steps to start this process.
Tight Lines

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