Every business relies on other businesses to provide materials, products, and services to accomplish your mission. These relationships are collectively referred to as your supply chain. They supply necessary materials, products, and services to your business. The ‘chain’ portion of the description references that one supplier might also be a customer of other suppliers that allow each to offer value-added products and services to you as you provide value to your customers, thus the supply chain.
In most businesses, your supplier relationships can determine your costs, competitive advantage, and partnerships in delivering your value-added. Managing these relationships is critical to ensuring steady flow of supplies to feed your operations, adequate quality, and economic costs for your business. If these relationships are so critical, how do you maximize the value of your supply chain?
One of the most used criteria for supplies is cost. While cost can be a significant determination of value, there are many other components that should be considered when choosing supplier relationships. You may be able to purchase something ‘cheaper than an alternative supplier, but the delivery lead time or quality is not predictable, thus causing uncertainty in fulfilling operational demand. Sometimes the cheapest supplier does not provide services, information, and support those other suppliers that might. This needs to be considered as a part of any supply chain decision. What value are you getting for the cost? Are they offering a single product or service, or do they provide multiple services your company requires? Each supplier relationship has a cost associated with it. The setup costs, the relationship maintenance costs, and others contribute to the overall cost of supplies. The more suppliers you have, the higher the cost of managing these suppliers.
This is the reason there are ‘wholesalers’ and ‘distributors’ who consolidate a plethora of products around an area of supply to be able to offer more of what your business needs, with the cost of only one relationship. These middlemen, as they are referred to from time to time, add value to the supply chain by carrying a product mix from multiple suppliers to offer a business the best ‘value’ for their supply needs. Sometimes this is by offering multiple options for a particular product. These wholesalers also offer related products, thus keeping your relationship count low. Other times it allows them to buy in larger quantities, thus passing on some of the savings to their customers. Some wholesalers and distributors offer customer service that helps you determine the best options, or assists with the design, or even provides technical product training. While these extra benefits are often overlooked, they can be valuable to your business supply chain by helping you deliver your product or service with greater value and efficiency. Some raw material suppliers often offer ‘customization’ services that might include warehousing, delivery, ‘cut to length,’ kitting, or other services that can help control your overall operations cost by performing pre-operations steps cheaper than you can in house.
Another critical supply chain criteria is the ability of the supplier to consistently deliver the right product, with acceptable quality, on schedule to fuel your operations.
Companies that require a predictable supply chain should consider the cost of delays if materials, product or service is not delivered in a timely manner. Delays in supply can starve your operations, causing resources to be idle and costing you in terms of ‘wait.’ Because your operations are often a flow of material and products through a process when the early steps experience a shortage, this has a ripple effect on the downstream operations which multiplies these costs. Material drives schedule, and labor drives cost. Poor or inconsistent quality can also have the same impact in terms of ‘waste.’ If you must sort, reject or rework supplied material or product, this costs the business by having to perform these operations. Having to ‘stock up’ or inventory supplies is one solution, but this ties up capital and has a cost of warehousing the extra supplies.
What is your businesses’ core competency? What do you offer as a ‘competitive advantage’ over competitive business?
How can your supplier relationships add or detract from this market advantage? Some suppliers often sell into multiple levels of the market and might offer their product directly to your customers or competitors. How can this affect your market advantage? Does your supplier offer discounted pricing based on building your relationship? Does the supplier offer the same product or service directly to your customers? Do they protect your relationship by having an exclusivity or geographic territory policy that allows your business to maintain a competitive advantage?
If your business purchases anything that is not considered a ‘commodity,’ then perhaps supplier ‘partnerships’ might make sense for these items. If a particular material or component is key to your success as a business, how can you partner with your upstream suppliers to ensure you get the best value and maintain a competitive advantage? These partnerships should be entered into openly, with clear benefit to both parties. A potential benefit might include a ‘voice of the customer’ to the supplier, perhaps on the characteristics of the material, product or service needs to be. A business that purchases a product or service and adds value might be able to offer access to customers that the supplier does not have relationships or marketing targeted towards, thus increasing overall supply volume. As mentioned above, sometimes manufacturers, wholesalers, or distributors offer co-marketing support or co-branding opportunities. These services can help your business sell more products or service through leveraging industry experience and brand awareness.