Larry Schwerin, CEO of San Jose, Calif.-based Capella Photonics, has a very direct way of getting best-in-class performance from his suppliers: He goes straight to the CEOs of the supplier companies.

"I explain our grand view, our marketing dynamics, what we are doing, why quality is so important and what their role is," he says. And he doesn't just do it once. It's a regular part of his and his staff's supplier-management strategy. "We even visit our suppliers when we visit our customers," he says. "Top-level communication is important."

Communication is also a major part of the supplier-management practices at pharmaceutical giant Glaxo-SmithKline. Says Gregg Brandyberry, vice president of global procurement and operations: "We use supplier forums to explain to suppliers just what it takes for us to consider them best of class, the criteria we will measure them by."

Brandyberry and other GSK purchasing executives like Jeanine Johnson and John Bolla spend a good deal of time nurturing suppliers and helping them help GSK. "We want all of our suppliers to be best in class," says Brandyberry.

But just what is best-in-class performance? Certainly, cost is part of it. Every purchasing professional is looking for the best total cost they can get, even if individual component cost may not be the lowest. But in this ferociously competitive industrial landscape, savvy and thoughtful buyers have learned from the experiences in the automotive industry that lowest cost isn't the only thing that's important. For GSK's Brandyberry—no slouch when it comes to requesting price reductions from suppliers—cost ranks lower than some other criteria.

He also looks for assurance of supply, quality and regulatory compliance and service, among other criteria.

Most procurement execs would agree with that. But Brandyberry goes a big step further. "We look for innovation," he says.

"Sometimes, we want a directional change in technology and so we look for suppliers who will work with us to achieve that directional change even if it's not in a direction they were originally going." In that quest for innovation, GSK has convinced a few suppliers to accelerate their adoption of new technology.

Innovation and new technology is critical to Capella Photonics too, and it is a big criteria in measuring the value of the company's key suppliers. Recently, the search for innovation as well as experience and a willingness to collaborate closely played out in Capella's selection of a contract manufacturer for a new product.

Schwerin and his team put all their communications skills to work as they outsourced manufacturing for the company's WavePath family of wavelength selective-switch modules. Those modules are for reconfigurable optical multiplexers and cross-connect applications. "These are not simple products," Schwerin says. "We are pushing the edge of optical engineering."

He knew that a standard assembly-line-type operation wouldn't be enough to satisfy his manufacturing needs. He needed a supplier partner willing to engage in a collaborative effort that would go far beyond what he had normally seen in the industry.

“We mutually invested in each other’s success.” —Larry Schwerin, Capella Photonics

Fabrinet put together a team of professionals with backgrounds in test, assembly, manufacturing, and materials handling that would serve as a braintrust for Capella manufacturing. Then, Fabrinet embedded that team with Capella engineers for 10 months to learn and refine every aspect of the product build. Capella certified the team on a parallel assembly line and then sent the team back to Thailand along with all the equipment.

The contract manufacturer also assigned an experienced quality engineer to work with the Capella team to identify and define quality procedures that would ensure both reliability in the products and assure that all processes complied with industry-certified quality procedures as well as Fabrinet's existing quality-control processes.

Those steps came naturally to Fabrinet, says Mike Alarid, the company's vice president of supply chain. Fabrinet itself looks for suppliers willing to act as partners. And, like Capella Photonics, it believes in frequent communication. Fabrinet calls its suppliers weekly and visits them regularly.

The Capella/Fabrinet collaboration worked exceedingly well, says Schwerin. Bill O'Hollaren, Capella's vice president of product development, echoed that sentiment and went further: "We expected and received an extraordinarily intense, committed level of support from the supplier," he says.

When it comes to getting best-in-class supplier performance, says Schwerin, integration is critical. "It's the key to partnership and it's difficult to achieve," he says. "But Fabrinet invested an enormous amount of resources to deeply understand our technology and our vision, and we mutually invested in each other's resources." That's why the supplier turned in best-in-class performance.