Avoid the pitfalls in supplier development

This article analyzes survey data to explore how companies with specific su pplier development programs overcame common pitfalls in assisting their sup pliers improve their performance. The authors provide a process map for dep loying supplier-development initiatives. After identifying critical commodi ties and suppliers, a cross-functional team meets with top managers at the supplier firms to discuss areas of improvement as well as key metrics and c ost-sharing mechanisms needed to evaluate the success of the effort. Lastly , firms need to monitor and modify their supplier development strategies, a s appropriate. The survey data indicate that organizations generally experi ence three types of pitfalls, mostly in the final stages of the process. Supplier-specific pitfalls stem from a lack of initial commitment. Companie s can avoid these by using evaluation systems that compare measurements and performance among suppliers, holding kaizen events at supplier sites, iden tifying cost-saving opportunities through target pricing, and designating a supplier employee to ensure that buyer-supplied training is put into pract ice. Tying a supplier's performance improvement to receiving future orders is a particularly dramatic way to get the attention of managers at a suppli er. Same buyers also offer their resources to suppliers, such as providing personnel support for some period of time to improve operations or building training centers for supplier use. Buyer-specific pitfalls also stem from a lack of commitment. Consolidating purchases to one or a few suppliers is one approach to creating the volume needed to justify investing in a supplier-development effort with the remai ning suppliers. Examining how these suppliers impact the quality of product s or using total-cost-of-ownership data can yield further proof of the bene fits of supplier development. Buyer-supplier interlace pitfalls originate in the areas of trust, alignmen t, and communication. Although written contracts may be important, some buy ers rely more on close relationships rather than on contracts to build trus t. Others use "expectation road maps" to tell suppliers where they are goin g and better ensure buyer/supplier alignment. Financial incentives, "design ed in" supplier products, and expected contract renewal are also incentives for gaining a supplier's commitment to a supplier-development effort.