The very best suppliers go the extra mile
By Chris Reilly -- Purchasing, 11/18/1999
Today's highly competitive environment in the chemical process industries (CPI) demands that chemical buyers and sellers work together closely toward streamlining supply chains. This effort obviously places added importance on the development of relationships between each supply chain link.With the development of more long-term business relationships with suppliers, and the move away from the traditional price-focused, transactional relationship, buyers have expanded their expectations of suppliers. Today, buyers want more than just consistent quality product, delivered on time, and at a reasonable, competitive price. Buyers now look for total value from their chemical suppliers, and the suppliers that stand above the rest usually get there by continuously adding more value to their customers' products and operations.
For many reasons, some suppliers are able to deliver this total value to their customers better than others are. But what exactly is total value? Ask 10 buyers this question and you might get 10 different answers. Often, much depends on specific relationships between buyer and seller and other variable factors.
However, the more buyers talk about what they expect, and what they get, from their chemical suppliers, the more their answers take on a common thread: The best suppliers go the extra mile for their customers' business. This extra effort may be defined by a number of supplier traits.
Know the business
"The best suppliers are those that go beyond providing material. They take the time to learn how their customers' businesses work and what their goals are," says H. Dale Hartough, director of purchasing at Catalytica Pharmaceuticals in Greenville, N.C.
"Basically, we want our suppliers to help reduce our total cost of manufacturing," Hartough says. "This involves new and effective approaches to keeping our costs down."
Offering new approaches to buyers' supply problems is severely hindered if the supplier isn't familiar with the needs, wants, and challenges of each customer's specific business. In most cases, a cookie-cutter approach by suppliers yields little in terms of cost reduction and, in some cases, can do little more than alienate customers.
"Our best suppliers take a keen interest and really learn what our business and the pharmaceutical industry are all about," Hartough says. "We want them to come up with solutions to our manufacturing problems and help with the challenges we face."
Hartough explains that one of the challenges his company faces is with regulatory paperwork requirements for many of the materials he sources. "This is one area where suppliers are expected to go the extra mile, even though we might not be the biggest chunk of their business," Hartough says.
"The pharmaceutical business is highly regulated," he adds. "There is a lot of paperwork and quality audits that we require of our suppliers, and we expect a lot of responsiveness in this area," he says.
"We ask for a lot from our suppliers," Hartough says. Example: "In approving a new supplier of a material," he says, "Such as a solvent or intermediate that is reacted into a drug substance, the supplier's manufacturing sites must be audited. This can tie up a lot of the supplier's people and resources.
"After a site audit, we may come back to the supplier with requirements that they make improvements in certain areas," he says. "And there may be specific requirements involving the purity of the material that may require that they do some extra analytical work.
"We also ask for all the material safety data sheets (MSDS) and drug master files (DMFs) involved, etc., so that we may develop an analytical standard for the material," says Hartough.
Hartough explains that suppliers must sign off on the specifications his company sets, as well as the validated analytical methods that are employed. "Then," he says, "when we actually price the purchase order, the supplier must guarantee that they will supply us only from the site that has been approved, even if they operate a multisite operation.
"Some suppliers look at that as an opportunity, others look at it as a chore. But the fact is, it's necessary to our business, and they must understand that," Hartough says.
Be proactive
One of the most common wants of buyers is that their suppliers take a more proactive posture in their dealings with buyers. But being proactive often means different things to different buyers.
For Hartough, being proactive means that supplier representatives come to him with creative ways to improve materials supply and his own production processes.
As an example, Hartough describes a situation where a supplier approached him to see if there was anything the supplier could change about the packaging of materials.
"One supplier was able to package a particular material in a size that would be 'just right' to put into our reactors, which would improve the process of weighing out the correct amount of material," he says. "We still had to confirm the weight of the product, but we were able to eliminate much of the 'stubbs' (leftover portions of material) that we had to keep track of in the past," he says.
"Another example involved a distributor supplier offering to buy materials by the railcar and then dedicate a truck to bring us material from their rail siting," Hartough says. "We don't have a rail siting, and the distributor supplier was essentially offering us the use of theirs," he says. "This was a creative solution that reduced our costs significantly and eliminated the need for us to put in a rail siting in order to do so."
For Jerry Davis, purchasing manager at Baxter Healthcare in Round Lake, Ill., a proactive supplier anticipated a manufacturing change in their process and was quick to inform Davis. "The supplier gave us more than a year to qualify the new process," he says. Davis adds that because the supplier fully understood his operations and his marketplace, they were able to plan the required analysis of product stabilities. "We moved together on a mutually agreed-upon timetable to get the process approved, and that eventually resulted in a lower material cost and a smooth transition," he says.
Another buyer--a purchasing manager at a wire and cable manufacturing company located in the southern U.S.--believes that suppliers should be proactive in terms of their pricing. "I like to be confident our suppliers are going to work for us to keep us priced appropriately and competitively in the marketplace," he says. "I don't want to always have to be the policeman on pricing."
Toward constant improvement
Another trait buyers look for in their chemical materials suppliers is a commitment toward continuous improvement. Toward this end, some suppliers have developed formal service improvement programs to ensure that they not only meet customers' expectations, but also exceed them, now and in the future.
At Ciba Specialty Chemicals Inc., based in Tarrytown, N.Y., a system is in place to constantly improve delivery service levels. Called "delivery service level improvement," the system involves the coordination of Ciba's customer service, materials management, distribution, and transportation functions.
"Our target is to deliver the right product to customers where and when they want it, better than 96% of the time," says Joseph Puglisi, Ciba's vice president of customer service and logistics. "We are currently at about 95.5% for our U.S. customers," he says.
Puglisi explains that one of the primary benefits of the system is that it has allowed the company to better understand exactly where inefficiencies lie in their materials-delivery process. "Those inefficiencies detract from our delivery service levels," Puglisi says. "As we improve on those, two things happen: Our delivery service levels go up and overall costs go down."
Fostering communication
As part of the system, Ciba's customer service representatives have permanent assignments to customers, which allows them to establish strong relationships. As Puglisi explains, "Often this means that the customer representatives take ownership of the successful completion of the order to the customer. We keep constant contact with our carriers," Puglisi says, "So we can inform customers, if necessary, exactly where their order is during the transportation part of the process."
The system includes some customer-satisfaction monitoring processes to constantly audit supply performance based on customers' perceptions. "This includes a customer problem-resolution process which formerly documents the customer complaint, identifies the root cause of the complaint, and requires the development of a corrective action to prevent reoccurrence and measure ongoing effectiveness of the action taken," Puglisi says.
"The process requires communication with the affected customer throughout problem resolution and also includes a post-resolution survey to monitor the customer's satisfaction with the resolution process," he says.
The system also uses transactional surveys attached to invoices of selected shipments, which ask the customer to judge Ciba's performance on specific orders. "Information from these surveys is used to identify problems and pose solutions during regular quarterly meetings with customers," Puglisi says.
How can buyers help?
One thing that buyers can do to help suppliers improve leadtimes is readily share production information with the supplier. "The sooner we get a customer's requirements for an order, the better we are able to meet their needs," says Puglisi. "Ideally, the customer will share their production schedule with us well in advance."
"When we get into the last-minute rush type of an order, it makes it more difficult for us in terms of our efficiencies--and at times, it can be quite disruptive to our operations," he says.
Other top-supplier traits
Buyers identified many other traits of superior suppliers.
"The best suppliers are those that provide market and product knowledge and support, and the best relationships are those in which both parties openly share information," says Pat Lambertson, purchasing manager for Norpak, the Hayward, Calif.-based packaging arm of Norton Corp.
"These relationships are built on trust and experience," Lambertson says. "I have to ask myself if I trust the supplier's sales representative, and if I trust the company."
Lambertson points to one supplier who earned his trust during this past summer's plastic resins shortage caused in part by force majeure declarations by several resin producers. "The supplier had the opportunity to cut us off from supply, but instead, they dedicated resources to meeting our requirements and did everything they could to ensure that we weren't cut off," he says.
Other favorable traits (in no order of importance) include: suppliers doing what they say they will do, providing innovative technologies and services, being flexible to handle unique requests, providing a wide range of value-added services, ease of doing business, good manufacturing practices, quality certification (such as ISO-9000), and integrity.
Why do supply relationships end?
According to buyers, one of the main reasons supply relationships end is because the buyer doesn't believe they are getting enough or the same service from suppliers.
An East Coast purchasing professional says that his company had used single sourcing for many of the solvents he procures, but has recently run into some supply issues. "Some major corporations have been shutting down their supply operations in order to install new electronic monitoring systems," he says. "If I need a tank truck of material tomorrow and the supplier is down for two weeks to update their IT system, it doesn't help me too much," he says.
Another reason may be changing supplier representatives. "When a new sales contact comes in," says Norpak's Lambertson, "I need to know that they are familiar with the way their business is run so they can get things done when we have a request with a short leadtime. Also, they should be customer advocates."
Another reason supply relationships fail include the introduction of newer technologies, or changing product requirements.
According to Baxter's Davis, he was forced to terminate a long-term relationship with a supplier because of health and safety requirements. Davis explains, "We had a long-term supplier that had supplied us medical products made of Latex for about 30 years. Through research, it was found that many health-care patients were allergic to Latex, and some had even died by going into shock from their allergy," he says. "As a result, the industry had to go to Latex-free products, and the supplier wasn't prepared for the change," he says.
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