A company can often generate substantial improvements via collaboration with their suppliers. In most cases there are mutual benefits and interests served by the collaboration of all parties. It would seem active efforts to stimulate collaboration should be common and ongoing, but they are surprisingly rare in our experience.
A large OEM with a long list of suppliers surely analyzes this list and prioritizes suppliers via some method—perhaps even the Kraljic Model discussed in our last newsletter. We believe collaboration should be considered seriously, although those in the low profit impact-readily available category may not justify substantial OEM collaboration efforts. Cost-benefit analysis will reveal the effort justified.
Suppliers that have more profit impact and/or replacement difficulty, on the other hand, would seem to be obvious candidates for collaboration efforts. Here are just a few advantages realized when the supply chain is optimized via collaboration:
1. Over time, a strong collaboration with important suppliers will lead to those suppliers getting a larger share of the OEM’s business. Up to a point this would seem to be in the best interests of both sides. If that is true, then it is perplexing that most OEM’s in our experience do not invest efforts to work with suppliers beyond price and quality issues.
2. Also over time, trust gained via collaboration is most likely to result in lower costs. The collaboration effort will point the way to improved procedures, lean improvements, innovation in all areas, even including more efficient and effective administration.
3. A strong collaborative relationship can also lead to positive referrals, and new business opportunities. Ironically, this may incur a risk of finding new business situations that compete with the original relationship, but in most cases new opportunities will be a win for all, since improved economic health should be good for both sides.
Given these benefits, inviting suppliers for a visit is almost sure to result in positive benefits with little risk. We have long advocated that OEM’s visit suppliers as a means of evaluation. Once a relationship is established, and when the supplier is deemed important and relatively unlikely to be a replacement candidate, then having that supplier visit you can reap great rewards. Scheduling periodic “Supplier Days” might be worth considering.
When a custom manufacturing supplier has the opportunity to visit the customer there are a great many benefits possible. Seeing how the supplied item fits into the overall customer’s process may lead to innovations. The supplier is naturally interested in finding other items to supply, and may also have suggestions about alternative materials, standardizing parts, more economical finishes, and a wide variety of design aspects that can lead to better results for you, the customer.
An example of a cost savings opportunity would be that a good supplier will be quick to observe if stated tolerances are really important. If loosening of tolerances is possible, there can be substantial savings. Conversely, it may be that some quality issue can be helped by tightening tolerances.
The supplier has a laser-like focus on ensuring that their small piece of the overall OEM’s business is optimized. The OEM, of course, is most likely to focus on the big picture, and may miss these detail opportunities.
If you conduct a supplier day, we recommend that you observe how intently the supplier examines your operation. If you do not see the desired level of scrutiny, this could be a clue that you have a supplier that may not serve you well over the long haul. A good supplier, worthy of your collaboration-building efforts will always be on the lookout for better methods. Given the opportunity to examine the environment where their parts or assemblies are used, the good supplier will be eager to suggest improvements. Early in a supplier day the wise OEM will make it clear that such suggestions are encouraged!
When an OEM encourages suggestion ideas, ensure there is some closure to these suggestions, whether they are used with some beneficial outcome or rejected. We advise you not to allow these suggestions to disappear without so that they are perceived as welcome in the future.
If you value the potential of a truly collaborative supply chain, instituting a well thought out supplier visit can lead to enormous benefits to the host company. We encourage you to give this serious thought.