How to develop excellent and loyal suppliers

When we choose suppliers, of course, we want the suppli …

When we choose suppliers, of course, we want the suppliers to be excellent and loyal. This is similar to choosing a partner. However, for many companies, the reality is: that excellent suppliers are usually not loyal enough, and loyal suppliers are usually not good enough, so they continue to develop suppliers, and constantly changing suppliers have become a helpless choice for these companies.

Suppliers Are The Foundation Of Product Realization

The quality, price, and delivery cycle of parts and components determine the quality, cost, and production cycle of the product to a large extent.

The greater the proportion of outsourced and purchased components in the components that make up the product, the greater the degree of such determination, and the quality, cost, and delivery cycle of components depend on the supplier.

Therefore, suppliers are the basis for the realization of our products. We should treat suppliers as our own branches, trust suppliers, rely on suppliers, do our best to serve suppliers, and cultivate suppliers into a solid production base.

02 Treat suppliers equally

In the buyer’s market environment, in business relationships, the buyer is usually in a strong position, while the supplier is usually in a relatively disadvantaged position. Therefore, some companies often use their strong position to force suppliers to accept some asymmetry conditions directly or indirectly.

This approach may bring some benefits to the enterprise in the short term, but it is unfavorable for the enterprise in the long run because although the suppliers are forced to accept these conditions, they are unconvinced at the bottom of their hearts.

As soon as there is a better client, they will “move away” from you immediately. As a result, the product quality, the fluctuation of delivery time, and the decline of service quality are naturally caused, and the enterprise will naturally change from “beneficiary” to “victim”. Therefore, in order for suppliers to be loyal to us, we must treat them equally.

03 Actively safeguard the interests of suppliers

Suppliers work with us for profit.

Suppliers won’t work with us if they can’t make a profit, and even if a relationship is established, it won’t last long.

Therefore, in order for suppliers to be loyal and continue to provide us with satisfactory products and services, they must actively safeguard the interests of suppliers:

(1) Give suppliers a reasonable profit margin.

(2) Suppliers are not required to undertake any other obligations other than those stipulated in the agreement, and they do not unilaterally increase product requirements or service requirements, or reduce suppliers’ profit margins in disguise. If the product requirements are increased or the service requirements are increased due to our reasons, and the cost of the supplier is increased, the supplier shall be compensated accordingly.

(3) After entering the mass production stage, the design scheme should be kept as stable as possible, and should not be easily changed unless it is absolutely necessary. If it is necessary to change, it should also take the initiative to communicate with suppliers in advance, and do a good job in the aftermath.

(4) When the average defect rate of the supplier’s products (incoming inspection defect rate, in-process inspection defect rate, and the average of the finished product’s one-time inspection defect rate) is greater than or equal to the profit margin, it means that the supplier may be incurring a loss on this product. In order to ensure the stability and continuity of supply, relevant personnel should be dispatched immediately and work with suppliers to improve their quality management measures and increase the pass rate.

(5) Establish and improve the system to prevent employee corruption, restrain the behavior of employees, and systematically prevent employees from using their power to damage the interests of suppliers. The anti-corrosion system should focus on restricting behaviors such as supplier selection, device selection, solution selection, pricing, formulation of contract terms, procurement ratio allocation, quality control, and claims.

(6) Try to use exclusive supply as much as possible, and do not add new suppliers easily, even if there is a better price if the supplier’s supply capacity can meet our needs and there is no major fault. If it is not an exclusive supply, it is not easy to reduce the procurement ratio or change the procurement direction without the supplier’s major fault. If the supplier has input in the product development process or the design change process, it must give corresponding returns from the order or other aspects.

It is necessary to fully realize the importance of building excellent and loyal suppliers to the survival and development of the enterprise, and select, evaluate and manage suppliers from the strategic perspective of building a production base.

04 The selection of suppliers should follow the “suitable” principle

The attractiveness of an enterprise to suppliers determines the loyalty of suppliers to the enterprise. When choosing suppliers, enterprises should also pay attention to “the right match and the mutual affection”. Otherwise, the cooperation will not be unpleasant or long-lasting.

Therefore, when choosing a supplier, we should choose the “suitable” supplier instead of the “best” supplier based on the actual situation such as our own scale, popularity, purchase volume, and payment ability:

First, the supplier’s product structure adapts to our needs;

Second, the supplier’s qualifications, research and development capabilities, quality assurance capabilities, production capabilities, and cost control capabilities can basically meet our requirements;

Third, the supplier has the desire to cooperate with us for a long time and is willing to make continuous improvements according to our requirements;

Fourth, our attraction to suppliers is strong enough, and it is possible to have long-term and effective control over them.

05 To evaluate suppliers, pay attention to the development potential of suppliers

Typically, evaluating a supplier’s development potential should include the following:

(1) The top decision maker of the supplier is a “businessman” eager for quick success or an “entrepreneur” with a long-term vision.

(2) Whether the development direction of the supplier is consistent with our development needs, whether there is a clear strategic plan, and whether there is a specific action plan and action record for realizing the strategic plan.

(3) Whether the supplier’s quality objectives are clear, and whether there are action plans and action records to achieve the quality objectives.

(4) Whether the supplier has a plan to upgrade the quality system, and whether the existing quality system is really implemented

(5) Whether the quality of the supplier’s existing employees can meet the needs of its enterprise development, and whether there is a medium and long-term human resources development plan.

(6) Whether the supplier’s existing management methods can meet the needs of the development of its enterprise, and whether there is an improvement plan.

(7) What is the social reputation of the supplier, and whether its affiliated suppliers have confidence in it.

(8) Whether the basic work of supplier enterprise management is solid, and whether there is any improvement plan.

06 To manage suppliers, we must “combine both benefits and punishments”, pay equal attention to supplier management and offer help

Common approaches to supplier management are:

Monitor the supplier’s supply performance, assess the supplier’s level according to the monitoring results, implement hierarchical management, reward the good and punish the bad, and rectify the unqualified items;

Regularly re-evaluate suppliers, adjust procurement measures based on the evaluation results, and eliminate unqualified suppliers.

This is an after-the-fact control measure, which helps to prevent the repetition of the same error, but it is not necessarily obvious for preventing the occurrence of errors and improving the supplier’s ability.

As we all know, helping suppliers to improve the quality assurance capabilities of the design process and manufacturing process is the best way to ensure the quality of incoming materials. Extending our progress management to the supplier’s production and logistics process is the best way to ensure timely delivery. Helping the supplier to improve their cost control ability is also an effective means to reduce the purchase price. Therefore, the supplier management must be “enhanced and supportive”. It is necessary to evaluate and reward or punish the suppliers, and also to give the suppliers the necessary help:

(1) Help suppliers improve the quality assurance capabilities of design and manufacturing processes

(2) Help suppliers improve their cost control capabilities

(3) Help suppliers improve plan management methods

(4) Help suppliers develop markets and maintain their stability

(5) Provide employee training support for suppliers

Learn More: 

Supplier Management


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