Buyers are taking a deeper view
"Superior suppliers recognize that their worlds are changing."--Frank Crespo, Global vice president of procurement and materials management, Praxair Corp.
By Christopher Reilly -- Purchasing, 2/10/2000
World-class chemical companies are instituting formal programs that both identify top-performing suppliers and attempt to increase business with them. To gain a glimpse of how buyers rate supplier performance, Purchasing Magazine asked buyers in the CPI whether suppliers have made general improvements in the way they approach materials supply and in what specific areas they have improved.Essentially, purchasing professionals are calling on suppliers to improve performance by being proactive in developing improvement strategies, and by showing them opportunities to enhance the total value of supply. Based on our research, buyers' visions appear no longer to be confined to basic performance measurements. While still obviously important, specific performance areas are giving way to improving the overall supply chain and to finding process efficiencies that were hidden or overlooked in the past.
According to a consensus of buyers, the best suppliers are those that:
- Work closely with customers to improve performance and reduce costs.
- Readily share data and supply resources to reach mutually agreed-upon goals with customers.
- Monitor their own performance for continuous improvement, as well as outline areas where customers can improve.
- Provide a quick response to problems.
- Have the flexibility and diligence to see problems through to resolution.
Continuous improvement
CPI buyers today are quite aware that supply landscapes have been shifting dramatically and are likely to continue to do so. Many are taking a longer and deeper view of the overall supply chain.
"When we talk about our preferred suppliers, we're talking about those that we care enough about that we want to do long-term business," says Frank Crespo, global vice president of procurement and materials management at Praxair Corp., a manufacturer of industrial gases based in Danbury, Conn.
"We recognize that with competition and the ever-changing business environment, some 'strategic' situations we develop with suppliers won't have the longevity that we may want," he says. "But when we start our development with a preferred supplier, we recognize that we want to make our relationship with that supplier an important part of our procurement program," he says.
Praxair values suppliers that recognize that achieving 'preferred supplier' status does not guarantee Praxair's business, says Crespo. Suppliers must continue to work hard toward continuous improvement. "In fact, [preferred status] is really just the beginning of our relationship with suppliers," he says.
According to Crespo, "The suppliers with which we have worked to develop close relationships all have a common thread--they recognize that their worlds are changing," he says. "They have to continuously improve in order to stay with us."
This, he explains, is where working toward continuous improvement and monitoring performance becomes critical. For this reason, Praxair has developed its supplier management program to identify problems and squeeze costs out of its commodity procurement. For more information, see sidebar on page 40C18.
Service improvements
While some responses received from buyers involve general improvements in the basics of quality, delivery and price, some other buyers said suppliers are improving in areas that involve suppliers tailoring their services to meet highly specific needs of customers.
While he says that for him, it is very difficult to generalize areas where suppliers are doing well, Gary Veurink, global vice president of purchasing at Dow Chemical, based in Midland Mich., says that consolidations among the industry's chemical and raw material suppliers have, in some cases, resulted in improved efficiencies and performance improvements in terms of a broadened scope of products and capabilities offered.
Todd Imhoff, vice president, supply chain at Solutia, based in St. Louis, Mo., says that he has seen general supplier improvements in the past few years, particularly in the area of overall reliability.
"Another area in which suppliers have improved is in the development of customized solutions to unique customer needs," he says. "In many cases, this may involve the development of application-specific technology."
Also, Imhoff says that suppliers are being more proactive in providing value-added proposals, and that they are focusing more on benefits to the entire supply chain, rather than just on individual links.
"One supplier improvement that has been of particular importance is that suppliers have a management commitment throughout the suppliers' organizations," says Rick Weitzel, purchasing manager, consumer group at Sherwin Williams in Cleveland, Ohio. "Many of the companies that we deal with will set up a dedicated person to handle our account," he says. "These representatives have authority within the organization to advocate our needs. It's this kind of commitment we're looking for from suppliers," he says.
Bruce Stafford, director of purchasing at Baxter Hemoglobin Therapeutics Inc., based in Boulder, Colo., says that suppliers have a handle on providing his company with support programs. "These are designed to ensure that production materials are made available quickly," he says "through supplier-provided and managed off-site inventory programs.
"In some cases, these support programs are constructed using local supplier representation to offer warehousing and other supply programs that are responsive to our changing environment," Stafford says. "This is valuable to us because it lends flexibility to our delivery schedule," he says.
Dennis Burns, purchasing manager at Wickliffe, Ohio-based Lubrizol Corp., says that suppliers have improved in recent years, especially in terms of their responsiveness. "Suppliers are getting better at contacting us when they get an order that they realize they cannot deliver," says Burns. "In the past, we would wind up calling them a week after the product was due to arrive at our facility, only to be told that they were unable to deliver the order," he says.
Monitoring performance
Purchasing at Sherwin Williams Corp., based in Cleveland, Ohio, has had its supplier performance monitoring program in place for about three years and, according to Dave Ayres, director of purchasing, the program has been instrumental in identifying improvements in the supply chain.
Sherwin Williams's program monitors supplier performance in three main areas: Quality of product, delivery and service. Under these areas, there are criteria used to measure performance.
"Under quality of product, we have some subsets," says Ayres. "These deal with substandard shipments, substandard costs, and supplier acknowledgements." Ayres defines the latter criterion as giving a supplier 30 days to respond to a particular product specification. "If the supplier doesn't respond within the allotted time period, they are penalized in their performance score," he says.
For product delivery, Sherwin Williams's purchasing measures whether a product was delivered on time and in the correct quantity. And for the service measurement, the company submits a questionnaire to personnel that come in contact with supplier representatives at all of the company's locations, asking them their degree of satisfaction with suppliers' performance. This is conducted annually.
"The supplier performance program is predominantly quantitative, rather than qualitative," says Rick Weitzel, purchasing manager, of Sherwin Williams' consumer products group. "Each performance category has a certain number of points assigned, and (with the exception of the service category, where answers may be subjective) supplier scores are generated from ratios derived directly from the performance data," he says, "So there is no room for or opinion in determining superior performance."
Instances of substandard performance are reflected in suppliers' performance report cards, which are generated by purchasing and sent to suppliers on a monthly basis.
"If the supplier receives a score that is low or decreasing, we give them a printout of all their shipments and how they were scored under the program, detailing reasons for their score," Ayres says. "We then encourage the supplier to audit their own records and straighten out problems with the individual plants," he says.
Consequences for poor performance
According to our informal survey of buyers, most buyers feel that suppliers have been improving and that much of that improvement has come as a direct result of working with buyers through supplier development and performance monitoring programs.
But what happens if suppliers are not improving? Buyers identified several areas that may result in a supplier's losing its preferred status or business with customers.
"We have had some suppliers that were just not able to meet the quality standards that we expected from them," says Praxair's Frank Crespo. "In the past, we looked primarily at first costs. For these suppliers, first cost looked good, but if performance in the area of quality was poor, we would end up spending a lot more over the long term," he says.
"You don't want to compromise your reputation as a quality manufacturer," Crespo says. "This is to be avoided at all costs."
One buyer based in the Western U.S. says that he had a supplier that not only lost its preferred supplier status due to performance issues, they ultimately lost their business with the company. "We conducted an on-site audit of the suppliers' facilities that was brought about by a string of substandard quality problems. The supplier was not willing to provide requested information and the quality problems continued," he says.
"As a result, we phased out that supplier's business as purchasing began to look for alternative supply sources," the buyer adds.
"Typically, a supplier will lose our business or their preferred status when the value proposition that originally got them into that [preferred] position has changed or the marketplace has changed," says Dow Chemical's Gary Veurink. "This usually happens gradually over time."
Many buyers encourage suppliers to provide innovation or new ideas to their performance improvement strategies.
"We don't require that our suppliers bring us innovative ideas or cost-cutting procedures," says Veurink, "but that is certainly something we encourage them to do. We make it clear that in order to gain an inside track to our continued business, suppliers should bring us innovation," Veurink says. "Innovation is very much a part of how we evaluate what suppliers bring to our business relationships."
Following through
Monitoring supplier performance looks great on paper, but a sound information-gathering system can lose its desired effect if companies don't follow through on the performance data they collect.
Linda Fischer, purchasing manager at Morton International's coating's group, which was recently purchased by Rohm & Haas, says that Morton's supplier performance monitoring program was flawed in this regard.
"Under the program," she says, "we were able to communicate our actual supply requirements to suppliers in a detailed manner. We also visited their sites to interact with the key people who impact performance," she says. "These were the positive aspects of the program.
"Where the program was deficient was that there was no commitment to the results of the performance data. What we had was an understanding with suppliers that they should improve performance."
But Fischer explains that there were no rewards or consequences built into the program that the suppliers should receive or lose business based on their performance scores. "Essentially, the program had no teeth," she says.
"In addition, performance measurements on a quarterly basis were neither timely, nor accurate, and rarely were sent back to the supplier in a consistent manner," Fischer says.
She adds that a lot of what the program was designed to achieve was lost in the lack of follow-up. "If you're going to measure supplier performance, you have to do it on a timely basis, and if you expect suppliers to improve, the performance information you collect has to be accurate," she says.
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