What makes a superior supplier?
By Kevin R Fitzgerald -- Purchasing, 11/19/1998
Purchasing professionals have always wanted many things from their suppliers--high quality, on-time deliveries, strong technical support, quick response, just to name a few. But results of a recent Purchasing survey indicate that sophisticated purchasers now seek suppliers that not only can meet standard performance criteria, but also will:* Work very closely with customers to raise performance levels, contain costs, and develop leading-edge technologies.
* Share data, resources, and people to overcome obstacles that stand in the way of mutually agreed-upon goals.
* Identify aspects of the buyer's operations that can be improved.
* Respond quickly to problems and emergencies.
According to the results of our survey, the vast majority of companies now track supplier performance, and more than half of these companies recognize superior performance with top-level supplier recognition, multiple-tier supplier ranking systems, or a combination of both. While only a few companies provide formal training for suppliers, most use supplier performance ratings and other data to spur continuous improvement in their supply base.
Survey results also show that it's not at all unusual for suppliers to lose top-level status due to inconsistent performance. And a good number of buyers report that distributors--especially of chemicals and electronic components--outperform the rest of the supply base. A lesser number say that metal fabricators are performing at a lower level than other types of suppliers.
Beyond the basics
We asked purchasing pros to identify common traits among suppliers that have achieved top-level status. After providing the "givens" of quality, on-time delivery, etc., many survey respondents elaborate eloquently on the type of relationship they seek most.
Top-level suppliers have the "ability to function as an extension of our facility," says one PM. "This means listening, being proactive, and having a knowledgeable sales, production, and research and development staff that can work as a team toward strengthening both our positions in the marketplace."
"Working together" and being "proactive" are constant refrains in survey responses. Purchasing pros don't want suppliers to sit around waiting for problems to happen. They expect them to anticipate potential problems and constantly prod buyers as to how they are performing, both positively and negatively.
When problems arise, purchasing pros want their suppliers to move quickly to find the cause of the problem and correct it, but buyers are willing to help. "We work closely with suppliers to solve any quality or delivery problems," says William Bailey, PM at fema Corp., a valve manufacturer.
Many purchasers are quite willing to share data, knowledge, and even in-depth financial information with their key suppliers. Harvey Miller of Trek Industries Inc., a producer of industrial cleaning systems, says his company opens the books for the best suppliers. "They are given everything they need to be successful," he says.
"We advise (suppliers) what is expected, tell them when they do a good job, show them were they have problems, and help them work to resolve them," says Foreman Rogers, PM at Unitron Inc., a manufacturer of ac power converters for the airline industry
Purchasing pros also want regular visits from suppliers, and they're more than willing to send their own people out to help suppliers. "We inject our people into the supplier as required," says Jamie McDonald, PM at Square D Co.
What gets measured gets done
Sixteen percent of readers responding to our survey say they do not track supplier performance. This result is a significant improvement from the results of similar Purchasing surveys done in past years.
Also: Several buyers whose companies don't currently track performance indicate that they're in the process of creating systems to quantitatively measure performance. As expected, it's usually small companies with very few purchasing personnel that do not measure supplier performance.
Data from supplier rankings is used in a variety of ways, purchasing pros say. Performance data is used by many companies to reward top suppliers with annual awards, dinners, and other formal recognition programs. It's shared with other internal departments, and it's used to award new business to top-performing suppliers when possible.
No substitute for meeting spec
Quality may be a "given" in some industries, but purchasing professionals continue to tell us that receiving product that meets specifications is the single most important trait in a top-level supplier, and that all too often suppliers still ship materials and parts that don't conform.
Our survey asked buyers two questions concerning most-desired supplier performance traits: What criteria are used to rank suppliers and what traits are characteristic of top-performing suppliers.
Forty-four percent of purchasing pros indicate that quality measures (conforming to spec) are used to determine supplier rankings, the highest figure of any performance measure. And 28% of respondents identify quality as a key trait in their top-performing suppliers, again the highest figure of any supplier attribute.
Other key supplier traits
Delivery measures are used by more than one-third of survey respondents in their supplier-performance tracking systems. In past reader surveys, delivery problems were usually tagged as the most frequent problems by buyers. This survey was no exception--more buyers respond that late deliveries still occur more than any other problem.
Pricing issues continue to move down the list of most important criteria, albeit slowly. And nearly as many buyers indicate that "total cost," not price, is a trait of top-performing suppliers. As we've seen in the results of many other surveys, purchasing professionals continue to become more aware of the importance of total cost versus purchase price. They also continue to become more sophisticated at measuring total cost.
Service from suppliers also is highly valued. Many survey respondents indicate they place a great deal of emphasis on how well--and how quickly--suppliers respond to problems and emergency situations.
Also: A good number of purchasing professionals still place emphasis on having suppliers certified to ISO 9000 quality standards.
Lonely at the top
Only a handful of suppliers in a company's total supply base reach top-level status, buyers say. It typically takes at least a year to achieve top-level status, though the range of responses to this question was very broad--three months to five years.
Surprisingly, many suppliers don't stay at the top level too long. More than three-quarters of survey respondents report that suppliers have been removed from top-level status. Reasons for removing suppliers from the top level, of course, center around declining performance in many different areas. But, again, inconsistent delivery performance was mentioned by more survey respondents than anything else, followed by non-conforming parts and materials.
One underlying reason for performance decline stands out clearly in survey results: management change at the supplier. Many survey respondents pinpoint supplier management changes--usually due to a merger or acquisition--as the reason that supplier performance tails off, and it usually happens very quickly after a merger or acquisition is finalized.
A typical response: "Management changed and service to our company dropped," according to Foreman Rogers from Unitron Inc. Another purchasing pro indicates that a change in management led to a change in a supplier's quality-control organization, and off-spec product was the immediate result. The supplier was subsequently dropped from top-level status.
More than a couple of survey respondents point out that small suppliers outperform larger ones. For example, Daniel Carrier, director of corporate purchasing at the Foxboro Co.--a manufacturer of controls and control systems--reported that "a small but quality-oriented company was bought out by a much larger company that has not yet reached certification level."
Other purchasing pros highlight the importance of good salespeople and a resultant decline in service when a good salesperson was replaced by an inferior one. Several buyers cite dishonest salespeople as the reason for dropping suppliers from top-level status.
Not a lot of training
To help suppliers raise their performance levels, the majority of purchasing professionals simply communicate needs, expectations, and problems to suppliers.
Only 13% of survey respondents indicate that they actually provide training to suppliers. But those that conduct training do it fairly extensively.
Examples: "We assist suppliers through training, both at their facilities and at our place of business," reports a purchasing manager for a company that makes equipment for the cement industry. Robert Wittel, material control manager at Aeroquip Inoac, a producer of exterior plastic automotive components, says "we teach how to build quality into the process and remove variability from the process. We invite suppliers to internal training classes such as problem solving."
A good number of companies have recently created cost-cutting incentive programs with suppliers. Manufacturers in many industries have benchmarked win/win types of incentive programs like Chrysler's score--supplier cost reduction efforts--in which cost savings are split with suppliers.
Many buyers report that they now include suppliers in design work and production planning much earlier than in the past. Generally, respondents indicate these early-involvement efforts are part of broader initiatives to work more closely with suppliers in all aspects of their business.
"We involve suppliers in program initiation, and we include them in the design process," says Clarice Johnson, manager, purchasing services at Akzo Nobel, a manufacturer of ethical pharmaceuticals. "We recognize and use their technology and expertise."
A good number of purchasing pros also report that, in an effort to help suppliers raise performance levels, they've worked hard to improve their own production scheduling and forecasts. These are areas that invariably are mentioned when suppliers are asked what they'd like their customers to improve.
Some stand out--both ways
Nearly half of survey respondents say that suppliers of certain types of products and services perform at a higher level than the rest of the supply base.
When asked what category of suppliers stood out, only one type of supplier is cited by more than a handful of survey respondents--distributors, especially chemical and electronics distributors. Survey respondents credit distributors with being very service-oriented and responding quickly to problems. Other types of suppliers that were noted for good performance: Electronic parts manufacturers, fine-paper producers, and plastic-resin suppliers.
A lesser number--35% of survey respondents--indicate that certain types of suppliers perform significantly worse than the rest of the supply base. Several respondents indicate they're having problems with metal fabricating suppliers, which is not unusual during periods of strong economic growth due to capacity limitations and the current scarcity of experienced workers.
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