Supplier Development Strategies

PURCHASING & SUPPLY CHAIN MANAGEMENT, 5e
Supplier Management
and Development
Chapter 9
© 2012 Cengage Learning. All rights reserved. May

not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part. SOUTH-WESTERN CENGAGE LEARNING
Supplier Development Defined
 “Any activity undertaken by a buyer to

improve a supplier’s performance or
capabilities to meet the buyer’s short-
and long-term supply needs”

2
a publically accessible website, in whole or in part. Purchasing & Supply Chain Management, 5e
Supply Development Activities
 Sharing technology
 Providing performance incentives
 Promoting competition among
suppliers
 Providing necessary capital
 Directly involving buyer personnel
 Training
 Process improvement
3
Steps to Supplier Development
1. Identify critical commodities for

development
2. Identify critical suppliers for
development
3. Form cross-functional development
team
4. Meet with supplier’s top management
team
4
Steps to Supplier Development
5. Identify opportunities and probability

for improvement
6. Define key metrics and cost-sharing
mechanisms
7. Reach agreement on key projects and
joint resource requirements
8. Monitor status of projects and modify
strategies as appropriate
5
Supplier Development Process Map
3. Form cross-
1. Identify critical 2. Identify critical
functional
commodities for suppliers for
development
development development
team
6. Define key 5. Identify 4. Meet with

metrics and cost- opportunities and supplier’s top
sharing probability for management
mechanisms improvement team
7. Reach
8. Monitor status
agreement on key
of projects and
projects and joint
modify strategies
resource
as appropriate
requirements
6
Identify Critical Commodities
 Do externally purchased products and
services account for > 50% of product
or service value?
 Is supplier existing or potential source
of competitive advantage?
 Does buyer currently purchase or plan
to purchase based on total cost vs.
initial purchase price?
 Can existing suppliers meet buyer’s
competitive needs 5 years from now?
7
Identify Critical Commodities
 Does buyer need suppliers to be more

responsive to its needs?
 Is buyer willing and able to become
more responsive to suppliers’ needs?
 Does buyer plan to treat suppliers as
partners?
 Does buyer plan to develop and
maintain open and trusting relations?
8
Identify Critical Suppliers
 Use formal supply base assessment

system
 Routinely evaluate suppliers and rank
them from best to worst
 Poor performers are candidates for
elimination
 Middle-of-the-road suppliers are
candidates for development
9
Form Cross-Functional Team
 Develop internal consensus and

support
 Improve internal processes first
 Typical members
 Supply management
 Engineering
 Operations
 Quality

10
Meet Supplier’s Top Management
 Establish relational building blocks

 Strategic alignment
 Measurement
 Professionalism
 Establish positive tone
 Reinforce collaboration
 Foster two-way communication
 Develop mutual trust
11
Identify Opportunities and
Probability for Improvement
 May be driven by final customer’s
requirements and expectations
 Determine probability and scope of
improvement
 Jointly agree upon areas of
improvement

12
Define Key Metrics and
Cost-Sharing Mechanisms
 Evaluate project feasibility
 Determine return on investment (ROI)
 Determine if opportunities are realistic
and achievable
 Establish agreed-upon measures and
improvement goals
 Determine equitable cost and benefit
sharing arrangements
13
Reach Agreement on Key Projects and
Joint Resource Requirements
 Identify necessary resources
 Obtain commitment to deploy
resources
 Develop specific measures and metrics
that demonstrate success
 Develop visible milestones and time
horizons

14
Monitor Status of Projects and Modify
Strategies as Appropriate
 Routine monitoring
 Ongoing two-way exchange of
information
 Creating visible milestones
 Posting progress
 Creating new or revised objectives
 Modify plan as necessary to maintain
momentum or address new findings
15
Overcoming Barriers to
Supplier Development
 Direct-involvement activities (hands’ on)
 Shared personnel in joint projects
 Incentives and awards (the “carrot”)
 Increase future order volumes
 Annual award ceremonies
 Warnings and penalties (the “stick”)
 Pull back current business
 Withhold future business

16
Buyer-Specific Barriers
 Barrier
 Buying company’s purchase volume from
supplier does not justify development
investment
 Solution
 Parts standardization across products
 Single sourcing

17
 Barrier
 No immediate benefit is evident to buyer
 Solution
 Pursue small wins to build momentum

18
 Barrier
 Importance of purchased item does not
justify development efforts
 Solution
 Take a longer-term focus
 Include integrated solutions to be used in
future designs

19
 Barrier
 Lack of executive support in buyer
organization for supplier development
 Solution
 Prove benefits
 Document and publicize

20
Buyer-Supplier Interface Barriers
 Barrier
 Supplier is reluctant to share information
on costs or processes
 Solution
 Create ombudsman to deal with non-
contractual issues

21
 Barrier
 Confidentiality inhibits information sharing
 Solution
 Establish confidentiality agreements
 Non-disclosure agreements
 Exclusivity agreements
 Engage in ethical behavior

22
 Barrier
 Supplier does not trust buyer
 Solution
 Spell it out with properly executed written
agreement

23
 Barrier
 Organizational cultures are poorly aligned
 Solution
 Adapt new approach to local conditions
 Supplier partnership manual
 Training

24
 Barrier
 Not enough inducements to participate are
provided to supplier
 Solution
 Designed-in motivation
 Future business
 Financial incentives
 Payment terms favorable to supplier
25
Supplier-Specific Barriers
 Barrier
 Lack of commitment on part of supplier’s
management
 Solution
 Implement only after commitment
 Joint development of goals and objectives
 Determination of potential costs and benefits
to each party and how they will be shared
26
 Barrier
 Supplier’s management agrees to
improvements but fails to implement
proposals
 Solution
 Supplier champions
 Key supplier employee
 Training in tools and techniques
27
 Barrier
 Supplier lacks engineering resources to
implement solutions
 Solution
 Direct on-site support from buyer
personnel

28
 Barrier
 Supplier lacks required information
systems
 Solution
 Direct electronic data interchange (EDI)
support
 Direct financial assistance as required
 Training on hardware and software
29
 Barrier
 Supplier is not convinced development will
provide benefits
 Solution
 Let suppliers know where they stand
 Supplier evaluation and measurement system
 View supplier performance vis-à-vis
competitors
30
 Barrier
 Supplier lacks employee skill base to
implement solutions
 Solution
 Establish training centers
 Develop supplier skill levels
 Provide human resource support
 Co-location and direct involvement
31

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PURCHASING & SUPPLY CHAIN MANAGEMENT, 5e

© 2012 Cengage Learning. All rights reserved. May

 “Any activity undertaken by a buyer to

© 2012 Cengage Learning. All rights reserved. May

1. Identify critical commodities for

5. Identify opportunities and probability

6. Define key 5. Identify 4. Meet with

 Does buyer need suppliers to be more

 Use formal supply base assessment

 Develop internal consensus and

© 2012 Cengage Learning. All rights reserved. May

 Establish relational building blocks

© 2012 Cengage Learning. All rights reserved. May

© 2012 Cengage Learning. All rights reserved. May

© 2012 Cengage Learning. All rights reserved. May

© 2012 Cengage Learning. All rights reserved. May

© 2012 Cengage Learning. All rights reserved. May

© 2012 Cengage Learning. All rights reserved. May

© 2012 Cengage Learning. All rights reserved. May

© 2012 Cengage Learning. All rights reserved. May

© 2012 Cengage Learning. All rights reserved. May

© 2012 Cengage Learning. All rights reserved. May

© 2012 Cengage Learning. All rights reserved. May

© 2012 Cengage Learning. All rights reserved. May

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