What Are The Benefits of Supplier Development?

    Supplier DevelopmentSupplier 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.

    Benefits of Supplier Development

    Supplier development includes all actions necessary for an organization to provide high-quality products at competitive prices.

     The main reasons for supplier development are:

    •    *Lower procurement costs
    •    *Reduced inventory carrying costs
    •    *Improved availability of materials or services that meet your              company’s specifications
    •    *Increased flexibility in meeting customer demands, particularly when you need urgently to respond to changes in demand (for example, needing more           products quickly)

    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.

    High Levels of Transparency Between Suppliers and the Organization

    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).

    Suppliers Go Beyond Their Roles as Contractors to Become Part of Your Company’s Value Chain

    Your company can benefit from your suppliers’ capabilities when they:

    •    *Understand your company’s strategy
    •    *Ensure that resources are allocated to your company’s internal needs;
    •    *Have a better understanding of the link between their own performance and that of your company.

    These added-value services help you reduce costs while increasing customer satisfaction. In addition, supplier development comes with many financial benefits:

    •    *Suppliers become more committed to helping your business succeed
    •    *Long-term relationships are built between supplier and customer, which can lead to cost reductions
    •    *Suppliers often offer discounts for early payment or bulk purchases from reliable customers
    •    *Improved quality reduces warranty expenses and product returns

    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.

    Organizations Gain An Advantage Over the Competition

    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.

    The Importance of Internal Customers

    Internal customers often play a key role in the success of a supplier development program because they:

    •    *Guide suppliers through different stages of supplier selection
    •    *Empower suppliers to meet your quality standards and business needs
    •    *Establish long-term relationships that lead to better communication between both parties
    •    *Provide valuable input into performing gap analyses, which identify areas for improvement.

    Internal customer support is also crucial when suppliers work towards complying with business processes or technical specifications that are different from their own.

    Allocate Resources to Your Company’s Internal Needs

    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.

    You Can Negotiate Better Contracts

    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:

    •    *Adding more components into one supply contract
    •    *Reducing contract duration from three years to 12 months
    •    *Ensuring you have sufficient quantities of products or services, so they are never out of stock
    •    *Improving delivery timeframes without any penalty clauses

    Collaborative Planning Helps Organizational Successes and Achievements

    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.