In the July 2007 issue of AD&P, we wrote about the expectations that the New Domestics have when they consider new suppliers, what they expect to see when they visit supplier operations, and how important it is to be aware of and prepared to meet those expectations. One of the subjects that is of critical concern to them is the state of your supply chain and how you relate to it. Our experience has shown that even companies that rate well in other areas of assessment often fall short of expectations in the supply chain area.
In the world of the New Domestics, a supplier is not a dirty scoundrel to beat up, but a resource and key to the future. They adhere to a core belief that we are only as good as those we partner with, so a company's ability to be successful is strongly tied to the caliber of, and relationship with, its suppliers. For the New Domestics, this philosophy drives a much deeper style of interaction with suppliers than most North American companies are accustomed to.
Think about your most critical supplier. Have you seen their strategic plan? Do you know what their growth targets are? Are they anticipating any changes in personnel? Are they interested in joint ventures or alliances in low-cost countries? At a typical company, purchased goods account for 30% to 80% of the price of its products, so a company's ability to control its financial performance is greatly affected by its supply base. Have you discussed collaborative efforts to drive out cost and improve service? Is there anything that could make them a weak link in your supply chain?
To develop a high-performing supply chain, a company must first categorize its supply base and identify the key suppliers. This can be based on the amount that they supply or on the critical nature of what they supply. The next step is to develop a comprehensive list of conditions that can cause change at suppliers that it would be useful to be aware of. An example is the potential for disruption at a supplier due to a management or ownership change. Knowledge of the situation makes it possible for you as the customer to be helpful at the supplier and/or to develop countermeasures in your own operation to deal with the impact. Conversely, it can be valuable for key suppliers to have an understanding of information about you, their customer. If you have growth plans that represent a huge opportunity for them but they are just seeing you as one quote at a time, then they might not be giving your account the support that it deserves.
Once the inputs are identified, communications channels and relationships must be established to ensure the appropriate two-way flow of information between the company and each of its key suppliers. Progress with supplier reviews and toward the desired state of supply chain relations can be accomplished by setting goals and assignments that the New Domestics would expect to see being monitored through visuals somewhere in your facility, such as in an obeya room.
With this vision of greater familiarity with key suppliers, it should be evident that this is not just a Purchasing department function, but rather a highly integrated activity. It is also important to remember to include all elements of the supply chain. At one company that we were working with, one person commented, “Our worst suppliers are our tool makers. The tools come in late, and they never work right.” Here is an opportunity for a joint effort to do a reflection with the toolmaker to understand the situation, diagnose its causes, and determine countermeasures that will result in improved performance. The willingness to work with current suppliers is one reason that once you get business with the New Domestics, you stay in-they take a collective approach to problem-solving.
The purpose of having a top-notch set of supply relationships, in the mindset of the New Domestics, is to make your own company faster, better, and smarter. A high-functioning supply chain has value for a wide array of business imperatives, including obtaining new business, driving out waste, and meeting improved performance goals. Having detailed knowledge of key links in the supply chain enables a company to be proactive in leveraging advantages, avoiding problems, and responding more quickly to new input from customers. Being able to demonstrate your supply chain philosophy to potential New Domestic customers will be important to winning an order.