Insights: Supplier Quality

Performance means taking inputs (such as employee work, marketplace requirements, operating funds, raw materials and supplies) and effectively and efficiently converting them to outputs deemed valuable by customers.

It is 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.