Yourself, your staff, and your governance team are not the only people working to help your business get ahead. Your various suppliers are crucial to this continual improvement too, and are probably becoming more important as the global trend of outsourcing continues. To be the best you usually need to have the best suppliers working for you, and the more control you have over the raw materials that make your business successful, the better your business as well.
There are many things to learn about how to manage your supply chain, especially if you are a goods wholesaler or manufacturing based business, but there are three concepts that are arguably more important than any other:
For your larger suppliers, especially of raw materials or finished goods that you on-sell, it’s a good idea to maintain a scorecard of how well they are each performing. For smaller suppliers like print, IT, or graphic design this may not be necessary but the same principals are still useful. The eight key factors to score each supplier on are:
- Quality – quality is king. If your products’ quality is not fit for purpose, then you’ll have disappointed customers, high returns, and a damaged reputation.
- Price – price is usually the second consideration since we’re here to make a profit. Quality/price = value for money.
- Speed – how quickly they can turn an order around for you.
- Capacity – the size of their operation today to handle big orders. A function of speed, volume and availability.
- Scalability – the size their operation could be tomorrow to keep up with your growth. Not always essential as you may be able to change suppliers if needed.
- Protection of your IP – particularly relevant for innovative or designer products that you’re getting made offshore, and where those suppliers and also working with your competitors. Trust doesn’t go far enough. You need formal written agreements/contracts in place.
- Ease – are they easy to work with, or are they slow to reply, misleading, and continually trying to haggle terms of trade?
- Stability – are they going to be around tomorrow? This leads onto the next point…
Just like talent management of your staff, you need to manage the talent of your suppliers. You should always have some at each life stage:
- Prospective suppliers – the suppliers that you are grooming for the future.
- Current suppliers – the suppliers you’re working with today. Of which you should have A, B and maybe even C suppliers for key ingredients in your business e.g. if you need ball bearings: A might supply 80% of your needs, B might supply 20% and is your backup if A can’t deliver, and C might be on standby for when A and B can’t fulfil your orders.
- Those you’re exiting – poor suppliers that you need to move away from.
A common mistake smaller businesses make is that they choose suppliers that aren’t a good match for their current size.
- If you are a small client for them, you will usually be their lowest priority, especially on production lines (the smallest fish in the pond).
- If you are their largest client, they may be at capacity trying to keep up with you, making mistakes, and unable to scale with your growth (the largest fish in the pond).The key, as per the diagram below, is that you usually don’t want to the smallest or largest fish in the pond, but rather a) large enough that you’re important to them, and b) knowing the right time to move onto the next supplier before you get too big.