What buyers want from suppliers
By Kevin R. Fitzgerald -- Purchasing, 11/18/1999
Industrial purchasing professionals want suppliers to improve delivery performance, better understand their customer's business, offer alternative solutions, help them manage inventories, communicate better, solve problems as they arise, and generally go the extra mile, according to the results of a recent survey of readers of Purchasing Magazine.All in all, purchasing pros are quite happy with the performance of their suppliers. A strong majority--60%--reports that suppliers have improved their performance over the past three years. Only 8% of survey respondents say that supplier performance has deteriorated over the same time period. The rest--32%--report no change.
Other survey highlights:
- Quality still reigns as the most important factor in supplier selection. On a scale of 1 to 10, with 10 being the highest score, quality considerations led all others with a cumulative score of 9.2.
- Delivery problems continue to lead the list of what buyers would most like to see suppliers improve, and by a margin that is growing from year to year.
- Many companies still do not have a standardized supplier-rating system in place.
- Most purchasing pros would rather buy from producers than distributors, usually for price reasons, but buyers report, ironically, that distributors perform better than producers.
- Most buyers have outsourced value-added tasks to suppliers, and nearly all of them report that suppliers perform these tasks either as well as or better than their own companies.
- Most buyers have had suppliers involved in mergers/acquisitions, and nearly half say that supplier performance has suffered as a result.
Reading beneath the survey data reveals that buyers and suppliers are working together much more closely than in the past. Many purchasing pros also mention that their companies are in the process of creating or fine-tuning supply chain initiatives that they believe will produce higher performance in the overall supply base by identifying and increasing business with top-performing suppliers.
While some purchasers still report quality problems, there is little question that quality levels continue to improve as time passes. A deep reading of survey responses also leaves little question that purchasing pros want suppliers to continuously offer more value to their products and operations, in many different ways.
What the best do
All suppliers that stand out from the pack do the obvious things: deliver quality product on time, work closely with customers for continuous improvement, and help solve problems when they arise. For the most part, these attributes are "givens" with superior suppliers. To achieve preferred status, buyers say, suppliers must do a lot more.
We asked buyers to relate examples of how suppliers performed above the expected performance level. We discovered that many times it's the simple and basic things suppliers do that buyers most appreciate.
A prime example: good communication. Many survey respondents laud suppliers for simply keeping the lines of communication wide open and taking the initiative to let customers know when problems occur or may occur.
Carroll Garrett, PM at Maxon Corp., a producer of valves and combustion equipment, points out that superior suppliers "provide excellent communication, even when delays occur. They're proactive in keeping us informed."
Another survey respondent relates how he was very impressed by a supplier that quickly and comprehensively acknowledged that an order was placed: "Ten minutes after I placed an order I had a fully detailed acknowledgement coming over my fax. It referenced my order number, part number, delivery date, price, etc."
Other suppliers receive kudos from customers for beating pre-established performance goals, for providing innovative suggestions for improvement, and for anticipating future needs. "Our packaging supplier far exceeded the 3% cost improvement with nearly a 13% improvement through value engineering," says one purchasing pro.
"One supplier thought outside the box and presented an option that won the contract," reports Warren Stricoff, PM at Penn-Plax, Inc., Garden City, N.Y. "That supplier is now a preferred supplier."
"A supplier took it upon themselves to anticipate our demand and react to it, so our customer wouldn't go down," says a survey respondent.
Another purchaser applauds a supplier that "took initiative on corrective action measures without constant prompting from purchasing. The supplier corrected problems and did not expect compensation for tooling charges or a price increase for the effort."
More purchasing pros are asking suppliers to take over inventory management for them, and they praise suppliers that react accordingly. One survey respondent lauds a key supplier for taking "compete material control of the items we purchase."
Deliveries--bad and getting worse
But all is certainly not rosy in today's relationships between industrial buyers and suppliers. For several years buyers have reported that late--and sometimes early--deliveries are their biggest headache. This year the margin was even greater than usual--more than 40% of surveyed buyers say delivery problems are the worst problems; quality problems finished a distant second, at 16%.
The increasing complaints about delivery likely stem from several factors: more use of just-in-time (JIT) materials delivery; a strong focus on integrated supply chains; more focus by purchasing on satisfying customers; and increasing costs of storing, handling, and managing inventory. Here's just a sampling of buyer comments that reflect the increasing importance of on-time deliveries in this new era of streamlined supply chains:
- "Our customers continue to shorten the amount of time for us to produce our product. We must respond quicker; therefore, our suppliers must shorten deliveries."
- "On-time deliveries to my customers is paramount, therefore deliveries from my suppliers are paramount."
- Another purchaser now insists on "quicker deliveries and increased flexibility" from suppliers. "Our customer base is requiring more build-to-order. We need to get the supplier base away from traditional monthly shipments."
- Yet another survey respondent wants more "unsolicited delivery updates" from suppliers. "Fast delivery schedules to our customers, coupled with just-in-time programs, require on-time delivery and notification of any changes that can affect delivery to our customers."
Regardless of the reasons, complaints about deliveries appeared constantly throughout survey responses, and many buyers say that they simply are fed up with late and missed deliveries.
"A supplier continues to miss delivery dates," relates Roger Schulz, director of purchasing at Fulton Corp. "I am currently seeking a new supplier for these items."
"One of our suppliers missed delivery dates on more than one occasion. We found a new supplier," says another survey respondent.
"Fifty percent of my suppliers run late," reports another.
Buyers also want suppliers to take more control of their own supply base and to stop using their suppliers as an excuse for poor performance. "Sub-vendors are used as a favorite excuse for missed deliveries," says one survey respondent.
Many buyers report that suppliers don't even bother to let them know when a shipment will be late. Suppliers "flat out ignore delivery dates and don't let me know there is a problem," says one survey respondent. "By the time I hear about it, it's too late to take corrective action or look for an alternate source."
Suppliers must let "people know of any problems prior to 'critical' time," echoes another buyer.
"Most suppliers don't even bother to let us know a shipment is going to be late," says yet another. These are only a handful of comments of this type. In short, purchasing pros see failure of suppliers to notify them of delivery changes as inexcusable. And several purchasers praised suppliers for the simple act of notifying them of late shipments.
Other complaints
Though late and missed deliveries continue to dominate buyers' list of gripes, other issues also come up. While quality is a "given" with the best suppliers, far too many buyers continue to report that received goods simply do not meet quality criteria. Other often-mentioned problems include suppliers not reacting quickly or sufficiently to problems; lack of after-the-sale support; poor preparations for presentations; and a general lack of competence--and even integrity.
Example: One buyer reports that "A bottle distributor didn't want to take back a couple of cases of 4-oz bottles. He pretty much called me a liar. I told him he should work on his customer service. I will no longer use this vendor." And what position did this supplier rep hold? "He was the president of the company."
Luckily, survey responses contained only a few comments of this nature. Buyers' gripes typically involve basic aspects of buying, including the oldest gripe: pricing.
"Suppliers rely too much on past relations and feel that the history between companies justifies raising prices," says one purchasing pro. "My job is still to get the best pricing."
Another survey respondent notes that it's not only delivery problems that gum up the supply chain: "Although quality has improved greatly, additional attention to detail is needed. With reduced inventories, it causes greater pain when materials are out-of-spec."
The risk of single sourcing came up in the quality area, also. One purchaser tells how a single-source supplier's "machinery broke down, and he fell behind four weeks. He did very little to catch back up, thereby shutting one of our product lines down." Switching to another supplier cost "twenty-six weeks and expensive tooling."
Several purchasing pros say they want to see suppliers offer more solutions and ideas for improvement. "I would like to see suppliers take a more proactive approach to suggesting alternatives," says one survey respondent, who seeks supplier suggestions on "packaging, material, delivery, costs, everything. Surely they have ideas that could help."
Corrective action, and more
The majority of purchasing pros responding to our survey say that they work "continuously" with suppliers in an effort to improve performance deficiencies. But in this era of supply-base reduction, buyers seem less likely to wait too long for improvement.
One buyer relates that a supplier "couldn't provide customer service," because the service group consisted of "poorly trained, inexperienced personnel. We changed suppliers."
Garrett at Maxon Corp. says that her purchasing group "documents specific shortcomings and insists on improvement." If improvement doesn't come, Maxon "drops those suppliers who can't meet our needs."
Barry Tocci, purchasing/contracts manager at Compaq Computer, notes that it's important to spell out to suppliers exactly what's expected at the beginning of the relationship. "Any actions after a failure are reactive, not proactive. The buyer's remedy for failure to meet expectations should be understood at the outset."
But most purchasers still take the time to work closely with suppliers to try to improve performance levels. Most survey respondents report that they hold formal, periodic meetings with suppliers--particularly poorly performing ones--at which they point out performance shortcoming and try to jointly develop a strategy for improvement. Several managers report that they've increased their own on-site involvement at supplier sites in an effort to provide further assistance.
Not enough measurement
Nearly half of purchasing pros who responded to our survey report that they still are not using a formal supplier-measurement system in their companies. However, about one-quarter of total respondents (one-half of those who don't have a system) report that they currently are trying to set up a system.
Perhaps even more disturbing, nearly one-third of those who do use a supply measurement system do not believe that it has improved supplier performance. The reasons for failure are many, but the most significant is probably that many companies have not standardized their measurement system across all divisions/business units of their companies. Of survey respondents who use such a system, nearly one-third report that the system is not used companywide.
Reasons for piecemeal supplier-measurement systems include resistance from remote plant sites, problems in integrating different information technology systems, insufficient funding, and lack of continued financial support.
Regardless of the reasons, it appears that more and more purchasing organizations are becoming aware that a well-designed and maintained system for measuring supplier performance can do a lot to improve quality, reduce costs, and streamline the supply chain.
Distributors vs. producers
More than 90% of survey respondents indicate that they buy goods from distributors. However, other results point to the fact that this is not by choice--nearly half prefer to buy from producers, and only 22% prefer to buy from distributors. Thirty-two percent say it doesn't matter.
Interestingly, when asked who performs at a higher level, distributors win handily. A total of 32% of purchasing pros say distributors perform better than producers, compared with only 19% that say producers perform better. About half see no difference.
Many buyers say that distributors benefit by the very nature of what they are: local sources that can handle and ship smaller volumes of goods than can be purchased from producers. A sampling of responses:
- "We typically are a greater portion of [distributors'] business, and thus warrant more attention," says Carroll Garrett, PM at Maxon Corp., a producer of valves and combustion equipment.
- "We want to keep smaller inventories and shorter leadtimes, which fits distributors better than manufacturers," says another survey respondent.
- "I prefer distributors because they usually have product on the floor," says another.
Buyers who prefer producers often cite cost or price as the reason. Buying from producers "cuts out at least one layer of pricing," believes one survey respondent. Several other buyers make the same point.
Another buyer says that producers simply provide better support and service.
Perhaps the best advice on the producer vs. distributor issue is this comment from Stricoff at Penn-Plax: "Distributors offer faster service and have better access to resources, but they lack the technical expertise of producers. Depending on your need, take advantage of both."
Happy with outsourcing
Nearly two-thirds of survey respondents have outsourced value-added work to suppliers over the past three years. Much of the outsourced work is either preparing for assembly operations or the assembly operations themselves, especially in electronics manufacturing. Other often-mentioned areas are machining and metal fabrication, packaging, and administrative duties such as employee benefits.
Purchasing pros are quite satisfied with the quality of the work done by the suppliers to whom they've outsourced various tasks. Nearly half say the outsourced work is done better by suppliers, and only 6% say the work is inferior.
M&As don't help
A word of warning from purchasing pros who have had to deal with supplier mergers and acquisitions: Don't be surprised if performance suffers.
More than three-quarters--78%--of survey respondents say one or more of their suppliers have been involved in a merger or acquisition within the past two years. Of those buyers who have had to deal with such a supplier, nearly half--45%--report that performance suffered as a result of the merger or acquisition.
Supplier performance problems also can result from simple reorganization, with no merger or acquisition activity involved. One buyer reports that "a supplier reorganized, causing disruptions in delivery and quality issues."
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