Economy puts emphasis on supplier management at Emerson Climate Technologies and Drummond
Two companies provide inside look at how to best manage suppliers during difficult times
By William Atkinson -- Purchasing, 8/13/2009 2:00:00 AM
During a recession, managing supplier relationships can take a different tone for many purchasing professionals. If suppliers go out of business, or even if they survive, but struggle doing so, this can pose problems for the company. Buyers need to work with existing suppliers during tough times, while also developing alternate sources of supply for those worst-case scenarios.
Emerson Climate Technologies in Kennesaw, Ga. manufactures commercial and residential air conditioning, as well as refrigeration compressors and condensing units. Frank Kosakowski, purchasing manager, points out that, as a result of the recession and resultant downsizing, "a lot of suppliers are cutting hours of production in manufacturing, as well as services, such as engineering support. A lot of these suppliers are running fewer shifts, shorter weeks, or even shutting down a couple of weeks a year."
One way Emerson has found to help suppliers through these times is to focus on better planning. "Providing forecasts for several weeks or months in advance can really help suppliers," he explains. Emerson Climate Technologies' purchasing team developed a very simple but effective forecasting program internally which involves close collaboration with the sales department and other functions in the company to determine projected need as accurately as possible into the future. "We send out updated forecasts to suppliers on a weekly basis," he states.
The forecasts aren't just for the next 30 days, though. They are even longer, so the company and its suppliers can keep some of the pipelines filled as much as possible and help suppliers deal with the ups and downs.
"Our work is very customized, so it is difficult for us to go out much further than 18 to 26 weeks with any kind of accuracy," Kosakowski explains.
The forecasting is showing benefits. In the last two months, the company has experienced a tremendous upswing in business. "Because of the forecasting program suppliers have been able to keep their pipelines full, so the impact of not having enough product for us as a result of our upswing has been far less than it would have been under a traditional purchase order schedule line-item scenario," reports Kosakowski.
Another company keeping its eye on supplier health during these economic times is Drummond Co. of Birmingham, Ala., which is involved in a number of businesses: coal and coke mining, a mining and foundry supply business and real estate.
"We are seeing that a lot of smaller suppliers are going out of business at a moment's notice," says Matt Hunter, senior purchasing manager at Drummond. "This really underscores the dependence that we have on smaller suppliers, not so much for critical items, but for any items." That is, according to Hunter, when you are missing a smaller supplier for any reason, even if it is not a critical supplier, it can hurt, at least for the short term. "Fortunately, this hasn't been a big trend yet, but I think it will grow in the near term," he states.
Hunter suggests buyers increase their monitoring of suppliers in two ways. One is to stay abreast of information through Dun & Bradstreet or related service reports. "You can set up periodic reports, such as monthly and quarterly," he states. "There are also some alerts so that the buyer can be notified of if a supplier company goes through any kind of significant restructuring."
The other strategy is to personally stay updated with suppliers. "Talk to them," he suggests. "Ask pointed questions, ask for financial statements and run a ratio analysis."
One of the questions to ask is how much of your business the supplier depends on for their livelihood, and vice versa. "If you end up having to decrease the amount of business you give a supplier for a period of time, you need to know how much of an impact that might have on the supplier," Hunter says. For example, if you represent a huge portion of the supplier's business and have to cut back on ordering for awhile, it could threaten the financial survival of that supplier.
Should you have a back-up list of potential replacement suppliers for all of your suppliers? Probably not. "You probably don't have the resources to do this for all suppliers," Hunter explains. However, you should have a current back-up list readily available for key suppliers. "In addition, you need to know where you can go to look for replacement suppliers if and when the need arises for other suppliers."
When looking for replacement suppliers for the ones that are going out of business, Hunter recommends conducting more diligence than you might have done in the past when you selected your original suppliers. After all, you don't want a quick repeat with your new replacement supplier going out of business shortly after you select it. "In sum, don't be complacent," he concludes.
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