The average American worker is edging up against a boundary of productivity that places a ceiling on how efficient companies such as manufacturers can be. Still, manufacturers and other labor-intensive industries are finding labor that’s mostly inexpensive, which may encourage near-term hiring.Read More
Manufacturers have been hearing about cloud systems for years, but many in the industry still rely on closed, in-house platforms for daily operations and forecasting.
Now may be the time to ditch those systems...Read More
Global shifts in costs, processes and consumer purchasing habits put the U.S. in a position to revitalizing its manufacturing sector and enhance businesses and industry at home.
The only thing missing is enough skilled workers to maintain the momentum.Read More
Sharing and spreading information is easier than ever, which is not always an advantage. The digital age has made keeping information surrounding intellectual property and product releases secret a complex task.
Strictly monitoring information flow within a supply chain is critical to keeping information seals tight. For companies in an IP-heavy value stream, having secrets slip out can be incredibly damaging, especially when it regards their newest product. Spoiled social buzz or destroyed trade secrets from hapless firms who didn’t monitor their supply chains have made national news multiple times. Following the tips below will help you keep your secrets properly locked away.Read More
In 2012 more operations were on-shored or near-shored than in any previous year. Tim Cook, CEO of Apple, has said that his company will spend over $100 million to bring some Mac manufacturing to the U.S. this year. G.E., Lenovo, Caterpillar, Boeing, and Coleman are just a few of the numerous other companies that are contributing to the current wave of on-shoring.Read More
This article was first published in business2community.com here.
Due to its simultaneously disgusting and entertaining nature the 2013 meat adulteration scandal, or horse meat incident, remains in the news even months after beginning. You might not be in the food industry yourself, but the scandal points out how vulnerable a supply chain with low upstream visibility can be.
Numerous grocery stores and food processors had no idea what they were selling to their customers. Now they’re suffering for it. If you want to avoid supply chain disruptions and inspire consumer confidence, know exactly what is flowing through your value stream.
Suppliers Are An Extension of Your Company
The rise of global supply chains have created consumers that do not see stratification within a value stream. Your suppliers, vendors, and partners are part of your brand and reflect on you accordingly. Their mistakes will be viewed as your mistakes.
If your suppliers neglect their work and mislabel horse meat as beef, you will lose credibility and trust. If your suppliers do not maintain fair working conditions, your public image will suffer.
The only way to avoid fallout from your suppliers’ choices is to be certain of what they are doing in the first place. Without upstream supply chain visibility, you are putting your good name on something you cannot be certain of.
No One Is Immune
Having a notable brand will not spare you the backlash of supplier errors. No matter how large or well-respected your company is, consumers will notice what the media makes public about your suppliers.
Apple, the largest and most recognized company on Earth, has been troubled enormously by the choices of its primary manufacturer FoxConn. Since 2010 Foxconn has struggled with a number of employees committing suicide within their complexes, citing low wages and lost prototypes. Foxconn’s most publicized response of installing suicide-preventing nets near the base of their tallest buildings has done little to calm consumer outrage since the first tragedy.
Though Apple has seen historic sales numbers since 2010, media scrutiny has been intense and brought out further problems with child labor and unsafe working conditions within Apple’s supply chain. It’s imaginable that this labor issue horse meat in Apple’s supply chain has caused more than one missed sale over the last several years.
Due Diligence Or Investigation
The time it takes to investigate a supply chain problem is lost production time. Few companies have the resources that Apple does to pour into investigation, process reworking, and image recovery efforts. If horse meat turned up in your product, how grave would your set back be?
If there is ever going to be a problem akin to horse meat in your supply chain, you have a choice: will you allow customers to discover the problem or will you root out the problem now by increasing visibility?
When consumers purchase your product, they trust that the labor your employ is fairly compensated and treated well; they assume that your product is exactly what it claims to be; they have faith that you wouldn’t negligently bring them harm. If they discover you are not deserving of their trust, the backlash will be strong.
On the other hand, if you preemptively increase upstream visibility to better understand everything you are delivering to your customers, you will eliminate any unsettling surprises.
Visibility Inspires Trust and Mitigates Risk
Do your due diligence and you will be setting your supply chain on a firm foundation. Customers are not just buying your product for its utility, they are buying the identity that you sell. If you can show consumers that your ethics run throughout your supply chain, you’ll inspire a great deal of confidence. Visibility lends itself to transparency.
The discovery of horse meat in numerous beef products has given rise to the most notable false step by a business in 2013. A lack of supply chain visibility has been the most prominent scandal of the year.
Don’t surprise your consumers with something they never intended to purchase or support. Increase your upstream visibility now and ensure that your value stream is only comprised of work you would put your name on.
Video – The Importance of Supply Chain Risk Mitigation
We are curating a conversation about supply chain risk at costflexrisk.com. We put this video together to highlight the impact of supply chain risk in the news. Please take a look and then let us know what you think at @GSCSOptimize (note, the link goes offsite here: http://costflexrisk.com/mitigate-risk/):
On April 24th, one of the most profound industrial disasters of the recent decade occurred: a garment factory in Bangladesh suddenly collapsed with thousands of its employees inside. At this point, the death toll has risen to over 1,100 people and sentences of life-in-prison have been recommended for the building's owners. There is no excuse for this disaster and our hearts go out to the victim of this tragedy.
Following a tragedy of this magnitude, I believe we have two responsibilities: to assist the victims as best we can and to learn from the mistakes that led to the incident. This article deals with the latter. The following thoughts are three applicable takeaways we should all be considering for our own companies following the disaster in Bangladesh.
As a preface, it’s important to note that the factory mentioned was many layers back in the value stream for companies like JCPenny's, yet it still had a profound impact on their supply. Scrutinous visibility is a prerequisite to the following points.
Deal with Ethical Companies
Short-changing ethics might appear to be a means of cost cutting at first glance, but the real cost and increased risk of working with suppliers who do not consistently take the high road is overwhelmingly destructive in the long run.
Aristotle once said that, "Educating the mind without educating the heart is no education at all." In the same vein, if you attempt to run a business intelligently without respect for the heart behind the business, you'll end up with no business at all.
Ethical choices are rarely made out of propriety; ethics are respected out of value for the long-term. Respecting employees develops loyalty and fosters productivity. Conversely, creating destructive environments, especially those so abominable that they result in tragedies like what happened in Bangladesh, can only result in interruptions, distractions, penalties, and problems.
Make no mistake, choosing suppliers that will work ethically is paramount to keeping a well-run supply chain.
Pervasive Disaster Recovery Plans
Disaster recovery plans should be thorough and available at every level of your supply chain. At Global Supply Chain Solutions, we always stress to our clients that it's not a matter of when you face a supply chain interruption, as much as when. As the disaster in Bangladesh shows, disruptions can come in ways that are completely unpredictable.
A good disaster plan will address all potential risks, no matter how improbable. Define a timeframe for recovery. And provide clear, quickly implementable solutions depending on each contingency.
Before developing these plans, determine which assets and suppliers could be the greatest risk to your supply chain and ensure that disaster recovery plans are rigorously worked out in these areas first. A sole-source supplier that gets interrupted could have a very long timeframe for recovery.
Creating a disaster recovery plan also comes with the benefit that it forces you to think through every possibility and facet of your operations. Increased understanding is always of value and any process that could bring another perspective is worthwhile.
Supplier audits are a tool that can be implemented preemptively and can dramatically improve your disaster recovery plans. Only once you understand the true position of a supplier can you effectively plan to recover from their disruption.
Auditing a supplier requires that you address the BOM, financial operations, manufacturing processes, schedules, freight processes, and design change processes of your suppliers. In short, every element of operations that involves a particular supplier should be assessed.
When running through the process, look for elements of non-compliance. While the auditing process's primary value is helping you address these problems, it also gives you a clear picture of how the supplier views your relationship. Strong compliance is a good sign of respect. How do your suppliers view their relationship with you?
For more information on supplier audits and how beneficial they can be to your supply chain visibility, check out our other post.
The April collapse of the garment factory in Bangladesh is an incomprehensible tragedy. However, if we fail to learn from the disaster and change our own operations accordingly, we take up some amount of negligence for ourselves.
Don't let your supply chain collapse in a disaster! Source your components from ethical companies and take the time to produce rigorous disaster recovery plans informed by supplier audits.
Monday morning April 8, HTC released Q1 profit numbers that were startlingly low. After announcing that they would be forced to delay the launch of the HTC One, the company's flagship smartphone, most analysts were prepared for problems. But not of this magnitude. Delaying the One’s launch by just one month has caused a 98% drop in HTC's profits.
The story behind HTC's record low Q1 earnings offers a lesson in supply chain optimization. The cause of the One's delayed launch was cited a component shortage and an inside source revealed that the company's suppliers no longer viewed HTC as a tier-one customer. What could have caused this corporate giant to fall from tier-one ranks? Improperly aggregated supply channels.
Overly Diverse Supply Chains Are Costly
Late last year evidence was presented showing that HTC was diversifying its channels of supply, attempting to be less reliant on any single OEM. This move was in suit with Apple's decision to remove Samsung components from the iPhone and was likely an attempt to avoid sharing profits with competitors. However, the move to diversify supply channels can have unintended consequences and it seems that HTC is now experiencing some of them.
Simple economics shows that heavily diversifying a supply chain will increase costs. Increasing the number of suppliers you utilize for any single component decreases your order sizes. Unless your production volumes are increasing radically, you will be forced to reduce your order quantities to each specific supplier.
Decreasing your order sizes is a decrease in demand for your suppliers. Larger order sizes allow suppliers to scale their operations and produce your components at a lower cost. Decreasing order sizes makes their own operations less efficient and is likely to increase the costs that they pass on to you.
Suppliers will serve their most important customers first. In the case of HTC, over diversifying their channels of supply likely caused component manufacturers to realize that serving other customers with larger order sizes was more profitable and efficient. HTC may have forgotten that value stream decisions carry consequences upstream as much as downstream.
Aggregate for Advantage
Taking the opposite tack of HTC and aggregating your supply channels rather than diversifying them can have some significant advantages.
While supply and demand might be working against you when diversifying your supply channels, aggregating suppliers allows the mechanics of economics to work in your favor. By reducing the number of suppliers that you utilize, you can increase the size of your purchase orders. Larger orders means greater manufacturing efficiency and reduced costs being passed down the value stream.
Larger purchase orders can also help assure your suppliers of their own importance to your operations and improve relationships. By diversifying your suppliers you do mitigate some risks, but you also show a level of distrust. Conversely, a little loyalty goes a long way and giving your suppliers a reason to believe they will have your business for a long time may help you hold onto your tier-one status.
Diversifying supply channels can have mixed effects. As with most things, there is a golden mean to be found in application. However, in the case of HTC, the implementation of more suppliers in late 2012 has clearly been a costly choice. Posting profits of under $3MM has left analysts wondering if the company will ever truly recover, even as the One finally launches in the next several weeks.
Value stream structuring choices will be some of the most important your company makes. Appropriately aggregate your channels of supply and you'll find yourself with a lean supply chain reliably delivering components at the lowest possible cost.
If you missed our webinar, watch the video to hear important tips on enhancing cost in your supply chain.
Find out how Weathermatic Saved 24%
One of the most common complaints from startup entrepreneurs is that there is simply not enough money to get the job done. Say what you will about the benefits of bootstrapping, a slight addition in cash flows can be the difference between success and failure. To survive these lean years and create a business that can prosper, you're going to have find unorthodox ways of keeping your supply chain costs very low. Follow the three tips below to stop up any value-leaking holes that might sink the ship before it leaves port.
Show your suppliers a win/win scenario.
In the startup environment, all options are still on the table. Your supply chain is still being designed and relational dynamics with suppliers are not set in stone. There is an enormous opportunity to be intentional in setting the tone for your supplier relationships.
Stephen Covey brought the idea of "thinking win/win" to notoriety and it is imperative that you apply it during these early stages. Considering the exponential growth that your company is destined for is thrilling, no doubt. It's also thrilling for your suppliers! The manufacturers you depend on face a scalability curve, likely one that is very similar to yours. Having a bright customer bound for good things will help improve efficiency within their own business and give them a solid shot at success.
If you can communicate this long-term message early, you'll be able to drive for a bargain from day one.
Get a handle on margin stacking.
The complexity of your supply chain is likely only going to increase as your company grows and adds more successful products to its offerings. The present simplicity of your operation gives you a chance to build understanding of your value stream that will be much harder to glean down the road.
The basics of margin stacking are that at each level of your supply chain, value is being added and the contributors are extracting a certain surplus. For every company that works on your product, from minerals of the earth to final product, there is a markup in the price. If your supply chain was completely vertically integrated, there would be no markup and the margin, or surplus value, would be entirely yours to extract.
Since it is highly unlikely that this will ever be the case, it's crucial for you to understand where your margin is going. Who is extracting the most value upstream in the chain? By analyzing this now, you will be able to minimize margin stacking throughout the life of your venture.
Find ways to maximize your supplier choices.
It’s much easier to include supply chain concerns in your product design and bill of materials early in the corporate growth cycle. Be sure that you are designing a product that gives you choices in your suppliers.
At times, you are truly constrained. Sometimes it is necessary to use materials that are not available from multiple suppliers, or to source assemblies from a highly specialized manufacturer. However, for every product component that can only be produced by a few, select suppliers, you are reducing your vendors’ need to compete for your business.
Competition drives out margins and lowers prices. Although competition sounds ominous when you think of your own market space, this economic principle works in your favor on the supply side of your business. The key, then, is to bring competition into your supply chain.
By designing your product to maximize the choices you have for component vendors and assembly suppliers, you create the opportunity for competition, which will insure that you get the best price for the highest quality components possible. Combine this with creating a balanced product design and you will minimize margin stacking and deeply reduce your costs. This is your chance to make competition your ally, instead of a challenge.
The startup and early growth stages are where companies face some of their greatest tests, one of the largest being to overcome the daunting cost curve that comes with being a startup. Give your supply chain the consideration it deserves and the cost savings will help you stay afloat!
By implementing the strategies above, your startup will be fighting fit through its lean years and ready to explode into fast paced growth.
With the growth of digital technology and the rapid increases in globalization, markets have become more prone to flux than ever. Regardless of the industry your firm operates within, being able to react to constantly changing demand will give you the power to capitalize on opportunities and control challenges. A flexible supply chain is key to your firm's ability to make these changes with expediency. Just like an athlete who is not stretching, a firm that is not building its supply chain to flex will find itself hurting.
The four questions below will help you assess whether or not your supply chain is up to the challenge of today's markets.
What is the time frame from placing a purchase order to receiving the product?
Increasing the velocity of your supply chain by minimizing order-to-delivery lead time will allow your firm to make the most of whatever it encounters. This metric is also a perfect first indicator for the flexibility your supply chain maintains.
No matter how accurate the models for demand forecasting you have created are, they cannot be relied on as a crystal ball. Anything from natural economic cycles to inclement weather can throw off your predictions. Demand forecasting is only a planning tool; it does not allow you to react. Decreasing your lead time gives you a superior ability to respond to the dynamism of today’s markets.
Churchill once said that, "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."
Increasing the velocity of your response time gives you the ability to be far more optimistic. If your operation experiences a boom in demand, being able to quickly increase the availability of your product will allow you to capitalize on the situation, making every sale possible. As difficulties arise and demand recedes, a quick response to keep inventories from piling up will allow you to reduce any costs from a bust.
What are your capacity constraints?
Imagining a best case scenario of an explosion in demand, could your supply chain quickly increase its production? The constraints that might slow you down in this situation might be holding you back more than you think.
Scaling your production to reduce cost through increased manufacturing efficiency should always be a goal of your supply chain management. However, bottlenecks preventing you from immediately increasing your production might also be stopping you from scaling effectively.
Don't let scaling be held back! Reaching economies of scale is one of the most far reaching beneficial objectives your supply chain might have. It creates a win/win scenario for all the companies in your value stream and can keep your product competitive in a saturated market space.
By defining and working out the capacity constraints you currently face, you will give yourself greatly increased ability to respond to tomorrows changes in demand. At the same time, you might allow your firm to scale more efficiently and begin experiencing the wonder of reduced costs sooner.
If you stopped operations tomorrow, what is your liability?
Building a flexible supply chain isn't entirely about making the most of tomorrow. It's also about creating a system that will be able to take a punch or two and keep going. By knowing what you are liable for if your operations have to stop tomorrow, you'll discover where your greatest fixed costs lie.
The gravity of fixed costs are easy to downplay if you are adequately covering them today. But when disaster strikes, their formidability becomes quite clear.
Assessing the worst case of what might happen if your operations are forced to cease will give you a strong case for what costs must be reduced today. You won't just be finding savings in these areas, you'll be creating a business that can survive lean years more easily.
What is stopping you from having two suppliers today?
Any number of factors could prompt you to rely on a sole source supplier. But simply settling for the situation will not solve the problems it creates
What is the honest reason that you don't have a secondary supplier already in place? What underlying assumptions need to be challenged?
A more thorough analysis of your bill of materials will help you know exactly what options you have. In the same vein, evaluating the unique capabilities required to manufacture your product equipment could give you deeper insight into your constraints.
Regardless of what is causing you to deal with a sole source supplier, don’t resign yourself to the position! Investing the time and money into solving a sole source supplier issue before disaster strikes will be far less expensive than your entire supply chain being disrupted not to mention the cost benefits today from creating competition.
Today’s markets are dynamic and risky. Or that’s one way to look at it. The other is that today’s markets are set for firms with the right skill sets to make bold moves and capitalize on the current wave of innovation.
If you can thoroughly work through the questions above, you will create a supply chain that can, “float like a butterfly and sting like a bee.” Regardless of what changes the market brings, you’ll be increasing your company’s ability to respond.
Your firm doubtlessly has the potential to deliver a knockout punch. Don’t let supply chain rigidity come between you and victory!
Sole source risk mitigation is a complex initiative for anyone to tackle and one of the most commonly battled beasts in supply chain management. As the adage goes, in this case, an ounce of preparation is worth a pound of cure. As anyone who has spent time managing a complex supply chain knows, a great many factors can cause disruptions in the supply chain from a sole sourced component: natural disasters, finances, political unrest, or obsolescence, just to name a few. When, not if, this occurs with a sole supplier, there is little that any downstream operation can do in reaction. Preparation will be your greatest tool.
The following three steps will help you mitigate the risk of dealing with a sole source supplier.
Assess the durability of the supplier’s operations.
Before there is ever a hint of a problem, there are some facts you should know about your sole source: What is their financial condition? What is their customer concentration? Do they have an acquisition strategy? What is their disaster recovery plan? What unique capabilities do they possess to build my product? How many manufacturing facilities do they operate? How are their facilities spread geographically? Would the sole source be willing to license their product to another manufacturer in the event of an emergency?
In some cases, answering these questions might take some serious digging. It’s worth it. Information is power and being well-informed will be a great asset if any problems ever do occur. Understanding your supplier’s durability will also help you complete the next step to mitigating sole source risk.
Assess the potential impact of the supplier’s failure.
Create financial models for several scenarios. Political unrest might take a manufacturer offline for a few weeks. A natural disaster might stop production for months. Their bankruptcy could stop their production for good. What does the trickle down effect look like in each of these cases? What is the likelihood? What is the impact? What is the persistence of the problem?
Comparing the cost of the risks to the value your sole supplier is creating will help you create a compelling case for either keeping them in the chain, or going back to square one to find a work around.
If you've decided that there is simply no way to go forward without your sole source supplier, there is only one way to actively reduce your risks.
Keep additional inventory on-hand.
Before we go any further, I should caution you that when dealing with a sole source in your value stream, it's not so much if a problem will occur, as when. And when those delays or failures do occur, the inventory that you have stored is all of the available product you will have for some time. Keeping larger inventories will give you more time to find a solution to the problem.
Bear in mind, holding greater than immediately necessary inventories isn't an entirely bad situation. If you're holding more, there is a good chance you can increase your order sizes which could give you a unit cost savings.
Don’t just minimize your inventory for cost purposes; use it for what it is meant for! Inventory is your main weapon against a breakdown in supply.
In the event that you are forced to use a sole supplier at some point in your value chain, ignoring the potential impact will be your greatest enemy. The fact that there is only one supplier should only highlight the importance of gathering as much financial and logistic information from them as possible.
After a problem occurs with a sole supplier, ”scrambling” will be all that you are able to do to improve the situation. Proactively preparing your supply chain and keeping your head in the game will ensure that another company's problems do not impact your success!
As you look toward the future of your firm, there are countless concerns that probably come to mind. Things like when you will have to make new hires, how to schedule R&D processes, or how to improve product and services support are all vitally important for your company’s continued success. However, here is one essential issue that businesses often seem to forget: ensuring scalability in the supply chain. Addressing the following concerns will make certain that you don't end up with limping production down the road.
Be certain that your partners can support rapid growth.
Especially after working with a supplier for some time, it’s easy to distance yourself from their business operations. If this has become the case, reframing your relationship with your suppliers might be in order. You’re suppliers are your partners. If you want your own business to succeed, you are going to need theirs to be thriving as well. This mutual support should encourage you to stay attuned on what is going on with your suppliers as much as possible.
The problem with not staying completely up to speed on what is going on with your suppliers is that you might get a shock once your own business begins to substantially increase capacity and scale. In cultivating your relationship with suppliers, you want to be able to keep an eye on what they are doing to continually improve capacity. Are they reworking their processes and improving their facilities? Are they making wise investments in their business? If they aren’t, they might not be up to the challenge of supporting your long-term growth.
A supplier that is growing with you and making provisions for rapid scaling can be a partner for a long time. On the other hand, a supplier that is not poised to grow, no matter how friendly or established, will only end up preventing future growth and margins.
Design products with readily available materials.
Having a design team that prides themselves on being on the forefront of innovation can be an enormous asset to your company. But it can also cause your product to include components that are hard to find. Crafting the most efficient bill of materials is all about balancing the benefits and drawbacks to each piece.
Including a component made from an innovative raw material might offer a variety of advantages to your product, depending on your industry. However, it takes a much longer time for production curves of raw materials to scale than for other goods, especially if these materials require complex production or refinement methods. The longer it takes these materials to become widely used, the longer it will burden your margins and potentially delay your delivery dates.
Innovative materials are the proverbial double-edged sword: they can lend your product flash and increased performance, while they can also cripple your ability to quickly scale. Factoring your supply chain into the design equation will insure your choices are balanced toward the long-term.
Ultimately, it's necessary to realize that the scalability curves upstream from your product will filter down. If your suppliers cannot scale with the same rapidity you have, they will slow you down. If the materials you are utilizing do not increase in availability more quickly than your own production volumes, they are going to further stack your margins.
If you can manage to factor these elements into your supply chain now, you'll be well on your way to insuring your manufacturing will scale with efficiency.
A recent study, “Business Strategy: 2012 Supply Chain Survey-Manufacturing Priorities and New Technology Adoption” from Manufacturing Insights Inc., found that 82% of companies greatest concern in optimizing their supply chain is cost reduction. If you happen to fall into this vast majority, finding savings in your value stream might be easier than you think. By maximizing the purchasing power of your supply chain, you can immediately reduce your costs. Surprisingly, doing that doesn’t necessitate enormous sales growth or a complete supply chain overhaul. There is one adjustment you can implement that will have a dramatic and immediate impact.
Consolidation and Aggregation of the complete Supply Chain.
Several firms we have worked with in the past discovered that two or more of their products included components that were common across the builds. Instead of sourcing these components from the same supplier at the same time, however, our clients had sourced these components at different times and often from multiple suppliers.
The ultimate goal is to drive commonality across the product line. This ultimately allows you to aggregate the components into larger purchase orders. By increasing your purchase quantities, you are bringing the mechanics of scale to your aid.
Larger purchases leverage your buying power for a lower price.
Well-established corporate giants have perfected this strategy and built entire businesses around it. Wal-Mart, for example, is notorious for using its leverage to deliver unbeatable prices to consumers. Though your final good might look substantially different, you can apply the same technique to your supply chain and greatly reduce your cost of goods sold.
Fundamentally, the concept of leveraging your purchasing power depends on scale. By buying more of a particular component from your supplier, you are giving their own production capacities a chance to scale. The increase in their manufacturing efficiency from this process allows them to then sell the components to you at a slight discount.
As a manufacturer of a final good, it's easy to overlook the economics of your suppliers. But the scalability curve continues to function at any level of your value stream. And the efficiency of upstream manufacturing directly impacts your margins. Suppliers that can create and sell greater quantities of a component will be able to manufacture these components at a lower cost.
All other things constant, increasing your purchasing power through consolidating suppliers is an ideal way to create savings in your supply chain. Most of the time, it doesn't require intensive revamps or changes in process and it doesn’t require any delays in production. In fact, it gives you the chance to improve your relationship with a supplier and add efficiency to your value stream.
Don't allow savings to slip through your fingers by failing to properly leverage the purchasing power of your firm.
The relationship a firm creates with its suppliers requires a substantial level of trust. Without the control that comes from complete vertical integration, there are always going to be elements of supply that are out of your control. Appropriately evaluating the suppliers of your components is the key to being able to rest easy on that trust. In many ways, you are looking for the same qualities in a supplier that you would in a new employee. You need to evaluate their abilities, yes, but there are also simple marks of professionalism that can demonstrate a great deal. These are three badges of a solid-performer that you should be looking for.
Suppliers should communicate thoroughly and promptly.
Finding a balance between keeping someone informed and giving them superfluous information is always tricky, but in a component supplier relationship, information flow should be ample and reliable.
Assembling components from a variety of suppliers to produce a final good can be an extremely complex task, especially in the high-tech industry. A good supplier will be aware of this and aim to never let anything fall through the cracks.
Any questions or issues that might arise in production will be addressed honestly and upfront. Terms to contracts will be clear and ready for questions, especially with regard to intellectual property.
As an aside, intellectual property rights are one area of your supply chain and business that you should always aire toward the scrutinous side on. If a supplier has both of your best interests in mind, they will not hesitate to field questions in this area and will be open in their response. On the other hand, if you feel your questions are met with some amount of hesitancy, you might be facing a major red flag.
To quickly boil this issue down, your suppliers should be keeping you well-informed enough that checking in on your orders almost feels redundant. That being said, check in on them.
Suppliers should be punctual and respect your time.
If you are going to meet your delivery goals, you are going to need suppliers that meet their own.
There are countless interruptions to productions that can crop up. Material availability, natural disaster, and transportation delays all come with the territory of manufacturing. In the same way that you should be accounting for these things in your in-house processes to ensure that production keeps moving forward, your suppliers should have contingency plans together that allow them to keep their agreements.
Though a minor delay might be excusable, if well-explained and handled with respect, recurrent delays or quality problems almost always indicate the existence of larger problems. Don't deal with suppliers that hinder you from meeting your own goals.
The following concept will help link and solidify these two previous points.
Suppliers should be transparent.
Supply chain processes are one area of your business that can be extensively quantified and optimized based on data. These metric based analyses provide excellent quality control and insurance against waste in the process. They are also crucial to preparing for the future and ensuring that problems are expected and dealt with well in advance.
Your suppliers should be keeping just as tight a control on their processes as you are and making this information readily available to you. If a supplier is unwilling to give documented proof of the controls and metrics they have in place, there is a good chance that they are not appropriately controlling their manufacturing. The waste that this might generate in their own value stream could substantially impair your margins or slow your ability to scale.
The transparency, or lack thereof, with which a supplier operates, in any area of their business, could be the perfect measuring stick for exactly how much they are trying to hide. As much as hiding something from a friend usually doesn’t indicate anything good, neither does it when coming from a supplier.
In vetting potential suppliers for your operations, professionalism should be one of their paramount virtues. If they communicate well, meet their deadlines, and are steadfastly transparent with their reporting, you may have found a partner worth keeping around.
As a closing note to consider, these three benchmarks are also concepts that you should be applying to your own business. Are you delivering your products on time? Are you communicating with your vendors consistently and promptly? Finally, are you making as much nonsensitive data available as possible?
Professionalism isn't all about reputation. It's a mark of competence for those that can maintain it.