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needed materials. These two factors impact each other and have a direct impact on the performance of the business.
One of the first things that must happen in order to begin to have an effective supplier relationship and therefore a consistent supply of raw mate- rials is a paradigm shift. Upper management must understand the potential benefits and be willing to wholeheartedly support the efforts at all levels to make the relationship prosper.
In this new selling model (Figure 8.1) you see the paradigm shift as the two funnels are flipped and contact between the companies is being achieved at all levels of each organization.
All levels in a company need to exercise creative thinking when a sup- plier is being dealt with. Acceptance of new ideas and changes is a must if a relationship is to grow.
When the supplier has been chosen, then the real work begins as the relationship is built. In business today, we must look beyond the “best”
price and begin to look at the total cost of doing business with a supplier and how these costs can be reduced. In most areas of business, it is not easy to get good historical data on quality costs. Most quality costs are hidden or not considered a significant cost. Some examples of actions that increase a supplier’s costs are:
• Order patterns requiring a supplier to increase their inventory to be able to meet the demand. The supplier needs to be able to predict and schedule production to best service customers and still control business costs. If a company can help in this area with good forecasts, this can be very beneficial for both parties.
Figure 8.1 The new selling model.
Customer is purchasing
• Top management
• Marketing
• Logistics
• Finance/accounting
• IS/IT Supplier is selling
Top management • Marketing • Logistics • Finance/accounting • IS/IT •
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• Requirements causing a supplier to make a reserved inventory.
This will guarantee that all orders will be met on time and is usually done to eliminate production interruptions due to a sporadic order pattern. The company needs to make better projections in conjunction with the production capability of the supplier.
• On the other hand we can develop problems by ordering small quantities of material to hold our inventory down. A company may be tying up a large reactor to manufacture a little material, incurring increased costs that would offset any inventory costs that would be saved.
• Multiple handling of products. Having the supplier produce and store material and then ship it on demand can be costly to both parties. A forklift can very easily do significant damage to some products.
• Scheduling changes. This is difficult to correct in cyclical businesses, but with good historical data and trending, reasonable consistency that minimizes supplier interruptions can be reached.
• There are so many little things that happen in business every day that cause increased costs. Companies need to be conscious of these and look for ways to reduce them. A company’s inflexibility can add costs for the supplier.
In some companies the quality cost picture is displayed as an iceberg with the majority of the cost being hidden under the water level. Finding these hidden costs and making progress at reducing them with suppliers requires a consistent effort. As companies evaluate their suppliers, they find their strengths, and they also find suppliers that are best able to meet their needs and willing to work with them.
The foundation of any relationship has to be trust by both parties. In some cases, as proprietary information will have to be dealt with, secrecy agreements may be necessary. The tone of a relationship is usually set at the time of the initial negotiations. Negotiations must not be approached with a “give me” attitude only. A company must put the supplier in a “win–win”
situation as well as themselves. The supplier must be placed in a position where he gets a reasonable profit from the business since the supplier wants to remain in business and so does the company. Remember, the indications of the verbal agreements are the intentions that a company should abide by when dealing with its suppliers. The legal contracts can get very difficult to understand.
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As relationships with suppliers are developed, creativity needs to be applied so new areas can be explored. Some new areas might be:
• Top executives meeting and becoming friends and really supporting the relationship. A way to do this might be to have an outing where they get together in an informal setting and can become friends while they learn the strengths of both companies and what they can accomplish together. This should be done at least once a year.
Perhaps the expense can be shared or the outing rotated from supplier to company.
• Share technical expertise through seminars. This could be set up to be done monthly by rotating different suppliers. Most suppliers are more than willing to make a several-hour presentation two times a year. This keeps the technical departments in the company up to date with the things that the supplier is working on. Continuing education for technical disciplines can be hard to find for specific areas and suppliers can become a real resource.
• Have technical people from both companies meet face to face (develop friendships). This also produces contacts within the technical community. When difficult situations develop and an answer or recommendation is needed, a friend in the suppliers’
laboratory can be an asset in quickly resolving the situation.
• Share end uses with the supplier so they better understand where their material is being used. Production workers enjoy knowing where their products end up and what they are being used for.
A short description of these products and their uses can make a supplier’s employees have a better feeling about their work and what they are making.
• Train employees from both organizations by using each company’s resources to help both grow. There are often common training requirements that the government has defined as well as some that are just beneficial. The common training could be shared, reducing the duplication of a lot of dollars. Some examples might be RCRA training, hazardous waste training, or Hazwoper 40-hour training. These are just a few of the common ones that are required today.
• Team members from both companies meet on a regular basis (quarterly or semiannually) to discuss what is going right and what could be done better. Here problems that have been resolved as well
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as the sore spots that remain can be placed on the table and openly discussed and resolved. This must be done if the relationship is to continue to grow.
• Share analytical equipment, technicians, and methods. Special laboratory equipment can cost a lot of money and in some cases is not continually used. Specialized equipment purchases can be shared and both companies can reap the benefits of the equipment.
A specific example of this would be an NMR spectrometer or a cyclical salt spray apparatus.
• Ask the question: What else can this supplier do for me? Be creative and get out of the old mold. Ask the question and see where the answer leads. A company may never know what could happen until they explore the possibilities.
• Look for unusual possibilities for working together. For example:
– Use of suppliers’ byproducts. Does the supplier have a byproduct that the company is trying to buy on the market? If it is not up to the specifications required, what would it take to get it there?
This could be costing the supplier disposal costs as well. A match here could have a real financial impact quickly.
– Common raw material sourcing. In some cases very similar materials are used by both companies. Maybe the one with the larger need could increase their volume so that both benefit on the larger volume leverage.
– Share equipment. Idle equipment is a significant hidden cost.
Does a supplier have extra capacity that can be used to help the company and decrease the overall cost of the plant?
– Creative inventory management. Some areas to investigate here may be supplier managed inventory or receiving in larger quantities on a consignment basis and helping a supplier with a warehouse in the area.
– Creative logistics. Developing the company’s own or supplier’s delivery system can be very cost-effective for both companies.
Each discipline in the company has a different perspective. By visiting each others’ sites, different disciplines will see different opportunities. These opportunities need to be explored to see if both parties could benefit from them.
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Remember, relationships do not just happen, they take work and time to develop. Work at it!