Supplier development is an efficient way for manufacturers to improve their competitiveness. This is because suppliers comprise an important element of the supply chain through which firms gain access to components, subassemblies, and finished products.
Supplier development includes all actions necessary for an organization to provide high-quality products at competitive prices.
The main reasons for supplier development are:
Generally, supplier development aims at improving the quality, cost, or delivery performance of suppliers relative to competitors. These improvements are achieved by developing suppliers’ human resources, management systems, and technical skills.
With supplier development, suppliers have a better understanding of their customers’ needs and requirements. This leads to improved communication between the customer and the supplier. The extent of transparency is also increased because both parties observe common standards for quality, environmental protection, and ethical business conduct.
The partners in an organization’s supply chain develop relationships based on mutual trust, satisfaction, and integrity. Supplier development improves these conditions because it creates opportunities for continuous improvement (both in product or service quality and in cost structure).
Your company can benefit from your suppliers’ capabilities when they:
These added-value services help you reduce costs while increasing customer satisfaction. In addition, supplier development comes with many financial benefits:
The added value brought about by supplier development is reflected in improved profitability, market position, and shareholder value. Suppliers also benefit because they learn new skills, increase efficiency and reduce costs.
Organizations implementing supplier development programs are much less likely to relocate their manufacturing operations when they face challenging economic conditions. The reason for this is that suppliers are more cost-effective in countries with a well-established supplier development program.
Supplier development is an important way to differentiate your company from the competition. It gives you more control over suppliers who are likely to be your competitors’ suppliers as well. Therefore, it provides an advantage in acquiring components and subassemblies, which may enable you to gain greater market share or offset price increases.
The fast-growing trend for outsourcing activities has created a situation where there are increasing numbers of “one-stop” shops that offer products and services previously provided by several companies under long-term contracts. Suppliers can then also become subcontractors to other major suppliers or manufacturers, creating new opportunities for growth within your supply chain (for both the customer and the supplier).
Outsourcing enables organizations to exploit economies of scale from a larger market base and the ability to increase efficiency and reduce costs. In addition, outsourced activities are less risky because they begin with a clearly defined specification before being contracted out to an external organization or supplier. Supplier development guides how to make the supplier’s organization more efficient and monitor performance once it has been outsourced.
Internal customers often play a key role in the success of a supplier development program because they:
Internal customer support is also crucial when suppliers work towards complying with business processes or technical specifications that are different from their own.
Creating an external environment in which the supplier learns how your company operates allows you to identify opportunities to use resources more cost-effectively. The supplier can become an integral part of your company’s value chain and help to increase its competitiveness through economies of scale because many components can be processed at one time instead of being produced in small batches.
The high demand for key components means that suppliers strengthen their bargaining power by becoming direct subcontractors instead of just providing finished products or services under a supplier/customer relationship.
Supplier development is a proactive process that enables you to identify areas where your suppliers can support your business aims and those targets that do not fit with the way their organization operates. This ensures that you can negotiate more cost-effective contracts by using methods such as:
Business partnering is an essential part of a collaborative planning approach, highlighting the need for clear objectives and establishing priorities for achieving results.
Supplier development provides the structure to make supplier collaboration easier and ensures that both parties work towards common goals. This is important when you need help developing systems, training personnel, or meeting stringent quality requirements, requiring additional resources.