How to: Integrate suppliers

by Purchasing Staff -- Purchasing, 11/12/2007 5:51:00 PM

Get the resources and get the stakeholders

Robert Wagner, vice president, procurement services at Cardinal Health in Dublin, Ohio, says integrating new suppliers into your supply chains requires four things:  1. Dedicated resources; 2. Very good communication. 3. Internal stakeholder involvement; and 4. A clear picture of the supplier’s role in integration defined as early as the contracting stage. 

Wagner manages Cardinal’s indirect spend and says introducing new suppliers is a very big priority for his organization and an often overlooked step in the strategic sourcing process. 

“There needs to be distinct and dedicated resources focused on new supplier implementation and deployment,” Wagner says. “And there needs to be a dedicated head of supplier communication” whose focus is sharing the new suppliers with internal stakeholders. 

Cardinal’s procurement organization typically segments its new suppliers and focuses on making various organizations within the company aware that there is a new and strategic supplier available. This process he calls creating a stakeholder map. 

“For example, if we have a new office products supplier online, we will target the administrative staff that orders office supplies,” Wagner says, adding that the earlier the stakeholders can be involved in the supplier management process, the less “selling” procurement has to do. “Enlist the key stakeholders from the beginning and get their thoughts on the sourcing process before their compliance is requested.” 

On the supplier side, early communication and involvement is also key to getting new suppliers ramped up. When it comes to communication, Wagner says technology can be a help and a hindrance. Too much reliance strictly on data flows between buyer and supplier as communication can alienate a new supplier that may be struggling early on. Sometimes a phone call or a visit can show much more than a spreadsheet. 

Suppliers need to do their part though. “In the indirect spend specifically, as part of the contract negotiations, we ask the supplier to share with us their launch and implementation plan—what they will bring to the table to help the implementation go faster,” Wagner says. “When you [move to a new supplier], the rogue spending is at a premium to the buyer, so the cleaner and quicker the conversion the better for the buyer. So it’s not just strictly the buying organization—it’s the tools and project management discipline of the supplier. That should be evaluated during the sourcing process.” 

Wagner says spend analytics tools can help the procurement organization track how much spend is going to that new supplier. “If we don’t see the ramp up we expected, we place more resources and scrutiny on why that’s happening until we get the results we expected. And sometimes that can seem blunt to a supplier.” 

Typically, a slow ramp up can be traced back to two main causes: either the procurement organization has not gotten its point across to the key stakeholders or the supplier does not have the infrastructure or tools to get to the volumes expected. 

“In my experience, people don’t purposefully commit rogue spending. So it’s the buyers’ job to present a clear value proposition early. But some categories are so complex and there are so many stakeholders it’s impossible to get everyone involved.”

--David Hannon

Evaluate, then communicate

The amount of attention and effort required to integrate a new supplier into your supply chain depends greatly on the complexity of the product being sourced. Fred Nagel, global commodity manger at the systems division of GE Aviation in Grand Rapids, Mich. points out that there’s a big difference between moving commodity-type parts from one distributor to another and moving a major subassembly from one contract manufacturer to another. 

“Basically, the more complex the product, the more time should be spent planning the supplier transition,” Nagel says. “It’s sometimes a good idea to interview the original stakeholders in your company about how they worked with the previous supplier. That can provide critical information for integrating the new supplier into your operations.” 

Once the plan is set, Nagel says the success or failure of a supplier transition depends primarily on the purchasing organization’s ability to facilitate the right amount of communication with the supplier as well as the internal stakeholders. 

“Purchasing can’t operate in isolation,” Nagel says. “It’s not uncommon for a supplier in transition to need assistance from a variety of organizations within the buyer’s company—quality, operations, engineering, contracting, and other areas.” 

The buyer or supply chain leader, Nagel points out, needs to function as the “ring leader” and ensure the supplier is getting the answers it needs, which can be challenging because in a large, complicated organization or it may not be clear who is the best contact. 

“You don’t want to have too many people involved, especially in supplier meetings early on,” he says. “There’s a risk of information overload. It’s best to have a small group of the right people to help a supplier.”
For example, a new supplier may need engineering support, but also troubleshooting support to avoid snafus that will slow the supplier’s ramp-up. A good transition plan will have clearly identified those internal contacts from the earliest stages. Nagel says his firm uses root cause analysis to identify and correct potential gaps between the supplier’s processes and his organization’s.

--David Hannon

Make sure the supplier and products are the ‘right fit’ 

When supply chain manager Mark J. Puzzo thinks about integrating new suppliers into Speakman operations, he think about two things: “First, product-driven companies tend to choose suppliers based on their products rather than their capabilities or compatibility. Second, the costs of not integrating a new supplier well can, at best, add additional cost and complexity to the transition and, at worst, hog tie an organization with problems that can far outweigh the potential benefits of the relationship.” 

Puzzo says that any new supplier relationship will have a fighting chance only of the procurement personnel first identify potential transitional issues and organizational changes early in the new-supplier integration process. “The earlier you identify these issues and changes, the better,” he says. “All too often an organization’s focus with a potential new supplier is on design, cost or market potential before they know if the organization can handle the operational specifics of the relationship.” 

Speakman manufactures bathroom fittings, electronic faucets, showerheads, and emergency equipment in New Castle, Del. Puzzo has learned that bringing new suppliers on board smoothly “starts with a cross-functional team of representatives from purchasing, research and development or engineering, logistics, operations and any other functional area that may be affected by the new supplier, as determined by the team. 

“The goal is to find the most effective way to integrate the new supplier into their day-to-day functions even before the supplier starts bringing in product,” he says. “Since getting the right product from the right supplier is the optimum goal, the team also must try to uncover and address any issues that could cause problems down the road.” 

If the team discovers something about the supplier or his products that could seriously impact the team’s ability to service internal and external customers, it must determine whether or not the issue can be resolved—and then resolve it—before the relationship can progress. “Since functional areas are involved in the procurement and supply team, they may have to work through necessary organizational changes within their groups so everyone affected by the supplier and his product is aware of what’s going on,” he explains. 

-- Tom Stundza


Plants are where rubber meets road 

Success of a new agreement with a supplier for MRO goods and services that’s negotiated by a central purchasing operation depends upon how well the supplier meets the needs of the local plant site. 

“The plant is where the rubber meets the road,” says Bob Harms, MRO commodity area team leader at Briggs and Stratton Corp., manufacturer of gasoline engines for outdoor power equipment in Milwaukee. MRO stands for maintenance, repair and operations. 

“Our plant buyers are open in sharing information about the operation with local reps of the supplier who call on their facility,” he says. “Because each plant’s needs are slightly different, it’s better for those needs to be understood at the point of impact rather than for us to try to communicate them from corporate.” 

After a series of acquisitions, Briggs and Stratton decided to take a more strategic approach to purchasing and formed commodity sourcing teams. The MRO commodity team, which is responsible for an annual spend of more than $100 million, has recently negotiated new agreements with a number of suppliers; many were awarded to incumbents. 

What’s new to Briggs and Stratton as a result of the agreements is that the company is now looking to implement such technology tools as EDI (electronic data interchange) and roundtrip punch-out to supplier websites to improve efficiency and further reduce cost. It currently uses SAP’s e-req application to create orders for MRO and other purchases. 

---Susan Avery

Bring in engineering, share information both ways 

When it’s time to work a new supplier into the supply chain smoothly, purchasing manager Dewey Stevens at Sheboygan Falls, Wisc.-based machinery manufacturer Curt G. Joa says he looks at the partnership in the long-term. He breaks down issues into three categories: financial, logistical and operational. In each category he makes sure to take a good look at the supplier’s capacity in each category, especially if the partnership will be long-term. 

A key question to ask, says Stevens, is: “will they be around a good while, and can they handle increased business?” Engineering plays a key role in making sure a new supplier is a good fit for the company—they’re a part of the supplier evaluation process and work with Stevens “hand in hand” when making any kind of organizational change. 

Regardless if the supplier provides a commodity or a service, Stevens says information between himself and the supplier needs to flow both ways. “They’re required to be in partnership with us and contribute new ideas that pertain to us,” says Stevens. At the same time, he will also introduce the supplier to the company’s culture and processes, introduce them to area the corporation wants to improve, and get the supplier introduced to the R&D department. Ideally, according to Stevens, “I want the supplier sitting in the desk next to mine.”

—Maria Varmazis