Purchasing builds preferred supplier lists
By Anne Millen Porter -- Purchasing, 4/6/2000 2:00:00 AM
The practice of rationalizing supply bases and directing business to suppliers with strong performance track records has taken deep root in the U.S. economy. In fact, a recent reader survey by Purchasing Magazine finds some 83% of companies deploying some type of preferred supplier lists. More than half of these respondents say preferred lists are applied companywide, across all business divisions and locations. Another 23% have managed to develop preferred lists across whole business divisions while 20% have developed favored suppliers for either specific locations or commodity groups.
Of the purchasing organizations that use preferred supplier lists, 60% say they have authority to compel sourcing from these lists. What's more, there appears to be plenty of suppliers making the grade. Twenty-three percent of survey respondents say they've added better than 150 supplier names to their preferred sourcing lists while 33% have bestowed most favored status on 50-150 suppliers. Of the 45% with fewer than 50 favored suppliers, only a fraction of respondents say they have fewer than 10.
Making the list
To earn spots on preferred sourcing lists, suppliers are often required to meet high specific performance requirements for anywhere from six months to several years, buyers say. Dom Soprano, manager of general purchasing for Xerox in Webster, N.Y., says that to become preferred, suppliers must meet performance specifications for "one to three years" as well as being "full-service suppliers." Tim Burbank, purchasing director, for Paulstra CRC in Grand Rapids, Mich., says suppliers must deliver at quality defect levels not exceeding five parts per million "for a minimum of 12 months." And to remain preferred, Burbank says, they must maintain both quality and delivery performance levels while, at the same time, delivering cost reductions.
"Suppliers must have consistent records of high performance and good pricing for at least one year," says John Whitford, purchasing agent with Calmac Manufacturing in Englewood, N.J. Likewise, Jay Popiel, purchasing manager for Lawrence Metal Products in Bay Shore, N.Y., says that achieving favored supplier status takes one year "at high levels of performance and problem solving."
Jim Kujawa, manager of purchasing and distribution for the Poly-Seal Corp. in Baltimore, says that, to become candidates for preferred status, suppliers must complete a quality system audit, successful trials, plus a sign-off on the customer's requirements. "At first," he says, "we will do incoming inspection [for approved suppliers]. When we no longer see a need for inspection, they become preferred."
Miscellaneous criteria
Beyond actual delivered performance, purchasing organizations often put preferred supplier candidates through a battery of other tests and measures.
As a baseline, many say they either deploy proprietary process audits or require supplier self-audits or accredited third-party process certifications. For example, the PM for a firm in Crawfordsville, Ind., says that to achieve preferred status with his company, suppliers must "meet standards of ISO/QS 9000 or audits by our company." Likewise, William Pugh, Jr., purchasing manager for Voss Industries in Cleveland says that in addition to meeting specific performance requirements, preferred suppliers are "ISO 9000 certified or better." Meantime, Randy Maycroft, purchasing agent for Phillips and Temro Industries in Eden Prairie, Minn., says suppliers become preferred on the basis of "self audits, quality audits, as well as performance."
Many of the purchasing organizations surveyed subject preferred supplier candidates to close investigations of such other factors as technology roadmaps, financials, industry positioning, investment strategies and innovation rates. As one purchasing pro puts it: "Suppliers that invest in new technology and equipment are preferred." The manager of raw materials and energy for a Midwest paper concern says, "Cross-functional teams review industry positioning, technology, R+D, customer service, e-commerce capability, industry knowledge, local stocking arrangements and commercial aspects."
Charles Barnes, purchasing manager for Ideal Tape Co. in Lowell, Mass., says his company looks at suppliers'"financial stability and investment strategies" before designating them as preferred. And Glen Batchelder, senior buyer with Bio-Rad Laboratories, in Richmond, Calif., says his firm creates a business profile comprising "quality issues, engineering and R+D issues, materials issues."
Purchasing organizations say they also look closely for signs that preferred supplier candidates are committed to investing, long-term, in their business relationships. The senior buyer-planner for a firm in Arkansas says preferred suppliers "must be willing to make capital investments and must be considered leaders in their field." Popiel of Lawrence Metal Products says his firm looks for "a commitment to our business and continued improvements." Meantime, Whitford of Calmac Manufacturing remarks that, "Our larger suppliers are thought of as part of the company. As we grow and change, they are expected to keep up in terms of new machinery and technologies."
Integration and value added are two other criteria that many companies use for naming suppliers as preferred. Xerox's Soprano says the company looks for suppliers that are "full service, vertically integrated manufacturers." Another purchasing pro looks for suppliers that offer, "additional services, programs and management" while another says his company populates its preferred supply list with "integrated suppliers [for] outsourced services."
The benefits
Benefits conferred on preferred suppliers are typically substantial, although companies vary in their generosity.
At one end of the spectrum, buyers figure it's a privilege just to keep their business. But most purchasing pros surveyed say they tend to at least increase their percentage of business with suppliers who earn preferred status and most direct new business to favored sources. The PM for a metal stamping and machining firm in Wisconsin says becoming preferred earns suppliers "a first look at quotes" which gives them "a slight edge over their competitors." According to Batchelder of Bio-Rad Labs, favored suppliers get "the ability to quote on new projects" which helps "direct R+D to potential suppliers within a commodity grouping."
Other companies add perks such as accelerated payment terms, access to customer demand or forecast data, and access to engineering or other resources for improving processes. Burbank of Paulstra CRC says preferred suppliers get "automatic RFQs on new business opportunities" as well as "access to engineering resources, purchasing data, and willingness to work with a supplier to become competitive." Meantime, the senior buyer-planner for a manufacturing firm in Arkansas says, "Mainly preferred suppliers [strategic suppliers] are given first chance at new products, they are given forecasts, and they are allowed to stock some product with guarantees of acceptance." The manager of raw materials and energy for a Midwest papermaker says preferred suppliers gain, "easier access to facilities, inclusion on mill project teams, access to mill operating data, and commitments to percentages of business."
A handful of purchasing organizations goes so far as to give all their business to favored suppliers. For example, the procurement manager for a major paper interest in Massachusetts says, "All new products are sourced through preferred suppliers. [They have] no competition." Meantime, the purchasing pro for a major office furniture manufacturer says, "They are the only companies from which we buy [for production items]. Jim Rohr, director of materials management for Friede, Goldman, Halter in Gulfport, Miss., says preferred suppliers receive "all the business" for particular commodities.
Of the purchasing organizations that use preferred-supplier lists, 70% say they draw supplier personnel into their new product development processes. In some cases, this simply means that suppliers are invited to review new design specifications before they are finalized. Still, many firms go much further, adding supplier reps to their design teams at the earliest stages in product life cycles. Jeff McBride, engineering purchasing, for Woodward Industrial Controls in Fort Collins, Co., says his company's most favored sources become involved in "design for manufacturability and component selection." Kujawa of Poly-Seal says preferred suppliers "participate in new product development meetings."
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