Studies done by the Planning Perspectives Inc. (PPI) have indicated that there is a fundamental link between the profitability of a company and the depth of its relationships with its suppliers. The president and CEO of PPI, Dr. John W. Henke, studies OEM supplier/buyer relations in 17 major industries including the automotive industry, and every year, his organization publishes a report that ranks the six major North American automakers. The report is known as the Working Relations Index.
Henke Reported that 2014’s Working Relations Index:
1. Proved that there was, indeed, a strong relationship between profits attained by OEM and the relationship it has with its suppliers. The warmer the relations with the suppliers, the more significant the suppliers’ contribution to the overall profit. When relations with suppliers are less than cordial, the less they contribute to OEM profit.
2. Was able to quantify the economic value of a supplier’s non-cost benefits to the OEM for things such as the sharing of the latest technology by the supplier. Other non-price benefits include the provision of support by the supplier which went beyond their contractual obligation in addition to other small benefits.
3. Was able to show that the economic value of non-cost benefits from the supplier significantly exceeded the financial gains derived from the suppliers’ price discounts. It was found to be 4-5 times greater on average.
The 2016 Working Relations Index report stated that if auto-manufacturers desired to overcome future challenges, they would have to work more intimately with their suppliers. This is because automakers rely heavily on their suppliers for materials, components, and parts.
Dr. Henke postulated that taking the time to develop better and more collaborative relationships with your suppliers is what is good for business. He elaborated further by saying that companies that are going through a rough time and are desperate for profits; tend to squeeze their suppliers for cost reductions in the belief that this measure will help the company. However, studies done by PPI over the years, show that this approach is wrong since it destroys supplier relations. The strongest and most profitable industry giants often have very tight and collaborative ties with their suppliers. Thus, an OEM that expects the best from its suppliers cannot focus on getting its suppliers to offer price reductions.
How to Forge Good Relations with your Supplier and Outsourced Partner
Any relationship is built over time, and this is especially true for business relationships. The most durable relationships are typically built on common goals and shared values. The following are some of the inherent characteristics of good suppliers.
You want a supplier that is able to create your parts out of specific materials via a particular process.
You have to ask yourself:
- Are these individuals capable of doing that?
- Are they well experienced in multiple manufacturing processes?
- Can they deliver a lot more than you are asking for now?
- Can they scale up with you?
Ideally, you need a supplier that can design your product or part at the highest quality and be consistent with it.
What you have to ask yourself:
- What are the step by step measures taken to ensure quality?
- Can you comprehend their quality process?
- What sorts of tests and certifications are you offered to ensure quality?
Every customer understands that there are bound to be hiccups in the product development process. It is how the supplier responds to these issues that you as the manufacturer should be concerned about. You are looking for someone who fixes problems and not allocating blame. You want a supplier that takes responsibility and tells the truth. Search for one who is experienced and has good references, particularly when it pertains to transparency and other ethical business practices.
What to consider:
- Are you able to access their facilities?
- Can you meet the persons that design your products?
- How about their other business partners? Are they fraudulent?
You want a supplier that will be easy to reach by phone or email. You want the supplier that constantly involves you on the latest developments. Timely communication which is consistent makes for a good supplier relationship. Therefore, it is imperative that you let your supplier know the frequency at which you would love to hear from them, especially if there are hitches or manufacturing problems.
Therefore ask the following:
- Will you respond when I email or call?
- How often will I get updated?
- Who will I communicate with?
- Will the person be speaking English? When working with overseas suppliers, ensure that the person you should talk with has a good command of the language.
With there not being a shortage of suppliers, it indeed does seem a bit taxing having to go through the process of selecting the right one. However, an excellent rule would be to look out for a supplier who does the minute things properly. Your supplier is supposed to make you comfortable.
Splitting from Your Supplier is Not an Easy Decision
At times, things between you and your supplier might not be running as smoothly as you would prefer. If you are just getting a basic item from them, then switching suppliers is the best play. However, if they are specially designing something for you, the decision is not as easy.
You need to explain your situation to your supplier and see if they would like to try and make it work. If they are on board, the next step is to set the project parameters- how much time you will give them to create X in accordance with Y specifications. Remember, choosing to ditch your current supplier is going to have financial implications; you will lose money and time, particularly if you have a project underway.
The one thing you might need to deliberate upon is having one supplier handle all the parts for you. The benefit of a contract manufacturer is that they have experience dealing with multiple materials and processes. Additionally, they already know who the best suppliers are. This leaves you with only one task – Growing your business.