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Break The Supplier Selection Stalemate

Adjust your supplier-selection practices to be able to engage the right supplier for the right activity and develop suppliers to meet your total needs.

The successful supplier for manufacturing and production is frequently not the ideal supplier for product development.  Adjust your supplier-selection practices to be able to engage the right supplier for the right activity and develop suppliers to meet your total needs.

It seems universal that those suppliers that are best for our business with regard to long-term manufacturing and production, are not the suppliers we can count on to work hand-in-hand with us when we are developing our designs.  If you happen to be a supplier to other manufacturers, then listen up and learn how to blow your competition away.

It’s a shame, but in many years of product development, focused on improving product development practices, I have only rarely encountered a supplier that was both helpful and responsive during the product development process and also efficient and quality-cost balanced well enough to retain supply contracts after product launch. For the most part, suppliers were either one or the other, but not both.

In our many struggles to improve product development, we tried a wide variety of things to try and somehow close the gap and get our total needs met.  Let me share some lessons and suggestions to help overcome the problems.

First, let’s review the problems.  Generally, because price is for consumers and producers alike the greatest deciding factor, we tend to select the supplier that can meet our quality and volume needs with the best price.  Unfortunately, many times those suppliers very good at consistent volume production are not very responsive when it comes to experimenting or developing.

It seems that the mentality and strategy of minimizing overhead and maximizing efficiency leaves little room for engineering expertise to be available to consult with customers or for capital equipment to be available to run tests or experiments.  During the product development process, this can be a problem.

When we need quick answers concerning production capabilities, quality capabilities, or even design assistance, our volume and consistency focused partners are not much help.  As a result we slow down to wait for answers or we make assumptions and pray.  Both often result in expensive and potentially damaging problems at product testing and launch.

The alternative is to engage smaller, more responsive suppliers during design development.  Smaller, more custom-order focused suppliers tend to be very helpful during design development.  They are often eager for more business and willing to bend over backwards to secure it, and they have a business structure better suited to supplying design expertise and advice.

Unfortunately, as product sales take off and demand increases, these more agreeable suppliers often run short of capacity, or consistency, or price point in order to meet our long-term production needs.  We can’t win.

We can enter into business with one, intending all along to switch suppliers later, after production ramps up, and we might even establish our contracts to facilitate that, but what works well for one supplier doesn’t always work for another.  Sometimes the handoff can be much more expensive or problematic than we hoped.

So, what can we do?  My best suggestion, based on experience with businesses that have addressed this conundrum for years, is to initiate a long-term strategy to change the environment of the game.  This strategy is easier if your business also has long-term technology and product roadmaps.

To solve the problem, we must first, change our supplier selection criteria and planning practices.  Second, we must begin developing long-term relationships with our suppliers so we can guide their growth and evolution to help meet our needs and expectations. 

First, let’s talk about changing how we select our suppliers.  When we don’t have suppliers that can do both product development and long-term production well, we need to plan on making a switch.  As we do this we need to keep a few vital issues in mind.

  • The switch needs to be seamless
  • We want to develop long-term relationships
  • We can’t perfectly predict the future

When we are in the product development process and we are selecting suppliers, consult with both extremes.  Find out what the long-term, low-cost suppliers believe they can do and get their bids if you can.  Set your terms for help and assistance during product development assistance and make them bold.  Let your supplier know that if they fail to satisfy during product development, they don’t get the long-term production.  If they are honest about their business they will confess to being concerned about meeting your development needs.

Likewise, talk with your amiable, development-helpful suppliers.  Outline the same set of expectations, but also talk about the long-term production expectations and price points.  Again, if they are honest with you, they will tell you if they are concerned with meeting your long-term needs/

It’s difficult sometimes, but the honest answers from your suppliers are very important.  One way to try and get the truth, instead of risky or false promises, is to communicate up front that you want to develop a long-term relationship with these suppliers for numerous product development efforts going forward, so knowing now what can be done is vital and as their capabilities develop, more contracts can be negotiated in the future.  Naturally, if they can’t meet their promises, future business bets are off.

Once you have a good feel for what suppliers can meet what needs, be transparent about how you plan to satisfy your needs.  Suppose that for today, you need to plan a switch from one to the other.  Be transparent and communicate your plan.

Let your development suppliers know that you want them to be your development partners, that you value their help, and that you will promise them the production contract for as long as they can continue to meet production rates and prices that fit your product profile.  Plan a reducing production cost profile that leads to the production promises of you high-volume, long-term production partner.

Likewise, let your long-term supplier know that you like their numbers for sustained production and would like to revisit their bid in the future and award them a contract for the production when the launch process is complete and the volumes are appropriate.

Be sure to encourage both suppliers to think about closing the gap in the future.  For small, responsive, growing suppliers, the promise of future work with a stable customer can help the business case to grow or develop the business to better meet long-term production needs.  For large, higher volume suppliers the idea that revenues from a stable customer can be captured from the very beginning, instead of later, post-hand-off, can be justification to increase overhead and provide the development service they don’t today.

Ideally, in the long term, one or more of your suppliers will begin to close the gap, and in the future you won’t need to plan on a hand-off.  In the short term, when the hand-off is necessary, there are a couple of practices that need to be seriously considered.

The first practice concerns tooling or similar capital equipment that a supplier uses on your behalf.  Most of us contract the supplier to create, own, and maintain the tooling.  It’s easier from an accountability standpoint concerning maintenance and wear, and our accountants would just assume not have the assets to muck up the books.  Unfortunately, when it comes time for the hand-off, we need to have a plan for how tooling should be transferred.

Sometimes suppliers will refuse to relinquish tools to a competitor, even if we offer to buy them.  They don’t want competitors to have access to what they believe are competitive advantages.  It’s a fair concern.  After all, if the long-term supplier could do what the development supplier could do, then we wouldn’t need the development supplier any more.

There’s no one right answer here.  You may need to enter into some delicate or hard negotiations.  Just be prepared to own the tooling for a change.  Also, keep your suppliers focused on understanding how the hand-off is necessary for your business’ success and if they help you now, they can expect your business in the future.

The second practice concerns developing a solution for the long haul.  This means that we still need the long-term suppliers’ capability inputs.  The best way to get this is to understand what machines or processes will be used for that long-term production.  Frequently, even if different suppliers don’t use the same equipment, experts in their industry or specialty still understand the capabilities of common equipment.  Let your development supplier know that the solution must work on both sets of equipment and hold them accountable.

I know that this may seem like a strange way to negotiate supplier contracts and relationships, but if you look at how some of the large corporations leverage their mass of consumer revenue, you’ll see that it is a very similar model.  Granted, smaller businesses may seem to have less leverage with suppliers, but it’s not necessarily true.  Often, transparency and honesty can forge very great relationships, and many suppliers understand and will respond.

In my experience, some suppliers have endeavored to fill the gap and become a one-stop shop from development to product retirement.  Some have dropped out of the game and didn’t want to play that way.   On rare occasions, the development supplier was happy to remain so, and had no interest in becoming a high-volume solution.  When they happened to be handing off to a long-term supplier with agreeable notions not to become a development partner, they learned to work well together to plan for eventual hand-offs.  Manufacturing is a diverse environment.

It is frequently a one-or-the-other stalemate when it comes to selecting suppliers to meet all of our needs.  We don’t have to accept it though; or at lease, we don’t have to take it forever.  Make a plan to change the equation.  Pick the suppliers that you believe have the best potential for long-term relationships and work with them to meet your immediate needs and to evolve together with you to meet your long-term strategy of using suppliers for both product development and volume production.  It will take some time and some tough negotiations, but you’ll be glad you did.

Stay wise, friends.