A client started receiving order cancelations from customers whose orders were weeks past due. A special steel that was required to build the products for fulfilling those orders had not been delivered by a specialty steel supplier, and they continued pushing out their delivery date.
When I questioned the head of purchasing on why he tolerated this supplier’s performance, he replied “They have the lowest price by far for this product, their deliveries used to be more on time, and I know we are their number three customer for this product”. Apparently, something changed. In a meeting we arranged with the supplier, and as a result of our prompting, the supplier revealed two previously unknown factors that had a direct impact on my client. 1. My client received high volume discount pricing for their modest order quantities because the supplier only fulfilled their orders when added to the high volume orders from their number one or two customers. 2. The number one and two customers were now ordering less frequently which caused the measureable delivery delays.
Had the supplier’s constraints been understood at the time of the first purchase, it would have been easy for their salesperson to proactively notify the buyer of the less frequent manufacturing runs. Also, if known, this could have been a checking point in the periodic buyer / supplier review meetings. With an advanced notice, the buyer and management would have had the opportunity to consider options like maintaining the current stocking levels but purchase those quantities needed sooner from a low volume / short lead time supplier (albeit at a higher cost), increase the stocking levels, some combination of both, or increase lead times to the customers. No matter what solution they chose, they could have prevented losing customers.
The takeaway? It’s up to you, the buyer, the purchasing company, to know what your suppliers are best at and the “why” and “how” they are capable of delivering to you what they promised.
Here are a few questions you can use to start gaining that understanding.
Are the skills and infrastructure required to produce the product you are asking your supplier to provide at the core of their competency or somewhere closer to the fringe?
Are your product specifications, tolerances, documentation requirements… common or within industry standards, and are they typical for this supplier?
Who are the bread and butter customers for this supplier? Would you be one of them?
What other markets does this supplier serve? Do these markets have foreseeable events that could impact this supplier and consequently the supply of your product?
Does this supplier’s location, facility, operation, process, equipment, people, experience, and culture align with their quoted product, price, quality, responsiveness, lead times, and advertised customer service levels?
What are your thoughts?
Look for upcoming blogs on Year End Inventory Tasks, Effective ERP Use, and Supplier Report Cards.