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If you expect to survive in the manufacturing industry, your number 1 priority should be keeping your vendors happy. Now that’s not to say you shouldn’t try to leverage any gain you can get. Keeping your vendors in the loop about upcoming changes in production volumes is paramount. They need time to react, particularly when the volumes are increasing. In essence, you are asking them to make purchases on your behalf, of which you will compensate them at a later date. The price for the use of their funds? The markup – the profit margin they enjoy.
By the same token, a supplier may have stocked quantities for you based on your projections, order history, and their ability to purchase. If a reduction in your requirements is extensive enough, it can place a burden on the supplier’s funding capability. They are now overstocked and fear they may not get an opportunity to sell the materials. Even worse, the manufacturer may not accept returned materials.
So these scenarios I’ve laid out are not designed to strike fear in your heart, although they may. These are simple truths that we, as purchasers, must take responsibility for. So at the very least, be sure your vendors are paid on time. This will generally keep them happy! Use any number of tools available to predict what your requirements will be, so you only order what you need when you need it.
According to Inc. here are 7 tips for rating your suppliers and vendors.
- Establish Performance Indicators.
- Classify Multiple Suppliers and Vendors.
- Devise an Evaluation Method.
- Determine Who’s Calling the Shots.
- Maintain Good Relationships.
- Decide When to Issue a Red Flag.
- Cut Loose Weak Links.
These are all excellent tips. There are multiple resources available to deal with these items.
Whatever method you choose to utilize, “Go Big or Go Home,” as they say, you must commit fully to the process, or it will fail you. But I want to go a bit deeper here. A principle that may or may not be apparent at this time is where the true soul of your rating system lies.
Consider this. The structure of your business is, in all likelihood, the typical hierarchical style. By that, I mean responsibility is passed down from the top. Each entity must react in the manner prescribed by the corporate structure, which typically is the way most companies operate.
I’m going to offer up a scenario you probably haven’t considered. Supplier/vendor relationships and the resultant ratings are a process that involves everyone within the manufacturing company. Do we still need the parameters of the 7 tips from above? Absolutely. Then how does every employee play into this?
The receiving clerk has to deal with the incoming product. How did it arrive? On a pallet from a trucking line? UPS? FedEX? Are the shipping containers large and unwieldy? Are the items over-packed? How much damage does your receiving department see from any vendor? Is the staging area large enough to hold the inbound freight until it can be sorted, logged in, counted, etc.? My head is spinning, and the materials just got here!
From here the product moves to either incoming inspection and/or the stock room.
Are materials easy to transport to the stockroom? How many products are rejected due to packaging damage? How much is rejected because of obvious visible physical damage? Here’s a good one: How much will be rejected at a later time due to non-functioning parameters that won’t be discovered for some time (i.e., electronic component damage due to static discharge)? What are the special requirements for storing the materials?
Are the materials to be kitted for use on the assembly line? How easily can this be accomplished with respect to the physical parameters of the material and/or the packaging? Again, what specialized accommodations are required to handle the materials? Are the received components the correct ones?
At this point, surely you must realize that we have only been talking about two (2) stations of the material handling process that has absolutely nothing to do with the vendor’s pricing, delivery, and normal customer service (the three main parameters for most any supplier).
Ok, I’ll not drag you through the next several steps, but I think you see my point. If we step back and realize that our requirements must be a topic for discussion with our vendors, then it must be a part of the “Grading System” as well. While it may not be necessary for every employee to have a conversation with the vendor, conversations within our own house are warranted.
Understanding that the needs of individual processes are the underpinnings of the requests we make of our vendors. This is what real customer service is all about. It’s not free T-Shirts, calendars, and ball-point pens. A fully vetted vendor can only exist when he/she is essentially a part of your team. Gain their allegiance, and you will have the perfect vendor. Bring them in when discussing new projects and changes in production volumes. Have discussions about how and when the products will arrive. Listen to his/her insight and ask questions.
There are a large number of vendor relationships (a frightening amount) that are nothing short of toxic. The buyer who beats down the representative on price and anything else she/he can coerce out of him/her. Many of these types of buyers are under the impression that price is above all, the most important factor. As I have shown above, this is clearly not true. Sometimes the representative/vendor is the source of the discourse. Excessively high minimums and ordering systems that are unduly complicated, requiring way more time to fulfill than is reasonable. Return policies are designed to encourage the purchaser to keep the product simply because it will be far more expensive to return due to re-stocking and return fees.
If your account representative is not a team player, get rid of him/her. Request a different person to service your account. If the problem is with the vendor, replace the vendor. There are way too many other possible vendors, suppliers, and representatives in the marketplace to accept sub-standard activity.
So in a nutshell, grading your vendor is as much about self-evaluation as it is an evaluation of the vendor. When you have a conversation with your vendor, expressing the needs that go beyond the obvious can build strong, resilient relationships. The fact is, the supplier wants you to succeed because then he/she succeeds as well. It’s a win-win situation.
If you’d like to learn more about improving the efficiency of your manufacturing facility, contact us and we will do our best to help you.