How Supplier Development Programs Strengthen Your Supply Base
When you provide a product to your customers or buy materials from another business, you’re part of a supply chain network. The goal is to have all the pieces of the network run smoothly so that each company can do what it needs without delay.
Occasionally, the supply base gets a kink in it from an unexpected variable, like a material shortage. This kink in the chain produces a domino effect that impacts every business in the network and its consumers.
When the delay becomes a regular thing, you have two choices:
Drop the company and find someone else, or try to work with them to iron out the problem.
That’s where supplier development programs come in handy.
Supplier development is a strategy used in business in which one company works with another to enhance the mutual working relationship. Similar to performance improvement, it benefits both parties and strengthens your supply base.
Backed by science and economics, the research speaks for itself.
Ahead, we’ll explain the ins and outs of supplier development and why you should consider becoming involved if the situation arises.
What’s a Supplier Development Program?
So you have a supplier you enjoy working with, or only one who can give you the materials you need.
But they repeatedly fall short in a critical area, like timeliness. Or maybe you’re the one on the short end, causing the delays.
Offering to work together business-to-business to improve overall performance might be the answer.
Overview of a General Supplier Development Program
Supplier development involves working one-on-one with a supplier. One of the businesses has expertise in an area where the partnered entity lacks.
They go through predetermined steps that focus on building up the pinpointed weakness to improve performance as they work together. The program comes with a plan of action and deadlines to guide both parties.
Example of a Program in Action
What does the process look like in a successful supplier development program?
Here is a hypothetical example:
First, we have Business A, a restaurant chain that has grown and expanded over the past decade. The chain’s success is partially based on the high-quality products they use.
They have recently begun receiving those products from Business B, a new entity in their headquarters area. Because the location is convenient, it’s cheaper for Business A to use Business B as their supplier.
But the process of procurement has been fishtailing as Business B’s processes are struggling. The supplies are always late, which impacts the first business’s ability to deliver the materials to all the restaurants in the chain.
Instead of losing the substantial cost savings of working with Business B, Business A decides to start a supplier development program partnership. Together, both businesses collaborate to ensure that Business B’s processes improve.
While Business A wants to focus on quality, Business B hopes to generate more quantity of work, as well. The winning scenario benefits both of the enterprises.
Why Supplier Development Programs Work
Many affiliated companies have tried their own version of a supplier development program. These are generally geared toward strategic businesses.
However, any SMB enterprise can benefit from the expertise of another, more experienced business. As these “smaller” fish learn how to optimize their processes, they become impressive competitors in their individual industries.
Tiny But Mighty Workforces
Over the past decades, small and medium businesses have used e-commerce to increase their target markets. Now, thousands of these entities make up a considerable amount of the workforce.
But it’s not always easy for small business owners to compete with large corporations. Making it more difficult is the fact that competition is now on a global scale.
Small and medium businesses have unique characteristics that make them the preferred entity of choice. With a supplier development program, companies that might otherwise fail can stand on their feet and become successful.
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How Supplier Development Programs Work
Partnering with another business is beneficial twofold. Research that follows partnerships in these programs proves that both companies end up with advantages such as a strengthened supply base.
Supplier development programs influence the helping business and the struggling business through:
Increased Competitive Incentives
This increase happens as the developed supplier is exposed to other buyers. This boosts competition and, ultimately, nets better rates and higher quality service.
Enhanced Innovation Opportunities
Small and medium enterprises often have ideas without the capital and resources to implement them. With a little extra support and guidance, they could bring these ideas to fruition.
Access to Collaboration
When an enterprise is attempting to gain a procurement contract, it’s helpful to have other businesses willing to work together. This team-based contracting gives the contractor the confidence that you’ll be able to get the job done well and in a timely fashion.
A Strengthened Supply Base
The loyalty that develops through these programs ensures that your supply base focuses on quality. The increase in connection among the network strengthens communication. You’ll know when problems arise early enough to mitigate potential risk (and possibly help out).
Each step, from sourcing materials focused on pricing to supplier diversity, is more easily managed after completing a development program. The supplier relationships built out of mentoring tend to establish firm connections.
How to Connect With Your Supplier
Whether you’re dealing with a delayed supplier or you want to let another company know you’re trying to keep up, there are some keys to connecting with them.
As with any time you’re trying for constructive criticism, it’s all in the way you communicate.
Direct and Approachable Discussions
No one wants to be talked down to. It’s especially touchy to tell someone running a business that they’re not doing their job well.
But if you don’t approach them directly, that weakness could ultimately put them out of business. If you want to help your suppliers, you need to be direct with their weak areas while honing in on their strengths with a solution.
Once you know the goals of your suppliers, you can use them to discuss a potential supplier development program. This part is essential.
What if you are trying to convince them that they need to upskill to expand, but they have no intentions of doing so?
Threatening to stop working with them doesn’t always shake out, either. If you cancel your business’s contract with them, they may just move on with barely a hitch in their plans.
Communication should be directly from the account manager to the supplier manager. This has more impact and cuts out many of the middle people who don’t have the authority to make changes anyway.
Don’t Just Have a Problem — Have a Plan
Complaining about the supplier’s methods and the problems they bring is frustrating for both parties. Chances are, the supplier knows they’re having deadline issues or another obstacle to success.
Approaching the supplier manager with a problem and a potential solution is the key to the resolution. Bring an outline of a supplier development program you’ve designed for the other business, so they see that you’re serious about helping.
Keep in mind that making the change you’re trying to impart could require a lot of work.
How will you get them training and access to the resources they’ll need?
If they think they’re doing everything on their own, they’re less likely to engage with you. Include these pieces in your outline, even if they’re not clearly delineated yet.
You can solidify all the parts to the whole when you work together to design the full plan.
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Steps to Create a Supplier Development Program
There are frameworks you can use to start to set up your supplier development program. Ultimately, though, each one has to be individually designed.
Step One: Determine the KPIs to Track
Overhauling everything at once is not only overwhelming, it’s also tricky to implement and monitor. Instead, analyze the company’s shortcomings and choose the key performance indicators (KPIs) that will be most beneficial to start with.
For instance, if the focus is on the fiscal side, you’d choose to look at revenue, cost reduction, and net profit. However, with businesses that have supplier performance issues, the KPIs should start much lower in the supply chain management level.
Rather than concerning either party with costs at this point, the KPIs to check should be deliverables, lead times, and quality issues.
Come up with a rating system to track these KPIs that helps you both watch for continuous improvement or obstacles.
Step Two: Collaborate on a Plan
This step includes collaborative planning. Without a buy-in, one party can’t design the plan and expect to enforce it. Working together so that everyone understands the end goal of each part of the process is essential to success.
Start with the KPI goals you’ve already established. Then, determine a plan of action that will get the business to each of those goals. Set up milestones along the way to watch for. Include meeting points to discuss the progress and reevaluate the plan’s methodology if necessary.
Step Three: Begin the Plan
With the framework in place, you can put factors like buying organization and the development process into print. Now, it’s time to see your supplier development program in action.
Together, you’ll implement the training protocols discussed in the plan and make the changes necessary to hit the KPI goals.
Because of your know-how, the business you’re partnering with will have long-term relationships with diverse suppliers. Their customer satisfaction will improve, and they’ll have a competitive advantage over companies that didn’t have mentoring.
Supplier Development Program Concerns to Consider
Although the advantages of a supplier development program can be substantial, there are also some risks to consider.
Trust and Security
Before starting a program like this, where trust is crucial, both parties must be on board with security concerns. There will be a lot of bandying proprietary information back and forth.
With the severity of punishment behind laws concerning personal data, it’s a legitimate issue you’ll have to iron out in your plan.
Lack of trust is a massive barrier to collaboration. Bring up this concern early in the discussion and agree to develop a mutually agreeable solution.
No one wants any competitor or other entity to hack into their system. The trust will develop naturally through ensuring the other business that you’re just as serious about their protection as they are.
Another issue to deal with is the initial cost of starting a program. Supplier development activities aren’t always cheap.
You can offer suggestions, such as pointing the other party in the direction of an invoice acceleration program, like Now.
They’ll be able to clear out their accounts receivables to begin the process of improving their metrics. But you must take into account the sustainability of their new service levels, too.
At the end of the day — or end of the program — the struggling business must be able to support and lead itself without help.
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Small suppliers have the advantage of using social media, such as LinkedIn, to establish a network. What they don’t always have, though, is the knowledge to change their processes and make them streamlined and successful.
The supplier relationship management you teach them can turn a potentially risky endeavor into a mutually beneficial journey.
Along the way, you’ll strengthen your supply base and get the other advantages of a supplier development program. It’s all in the collaboration, planning, and implementation, and you have the know-how to get that job done.
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