Growth is an omnipresent goal for every manufacturing or industrial business. Growth means more revenue which leads to improved cash flow which ultimately leads to increased capital to invest in expansion. Growth is your fuel for jobs, earnings, and opportunities.
Growth can also bring its fair share of complications, though. If you’ve experienced an upswing in business over the past several years, you probably understand those complexities all too well. When your business expands, there are suddenly more moving parts to manage. More employees, equipment, relationships, and potential obstacles.
One component of your business that may be expanding is your roster of vendors. The manufacturing and industrial worlds are now more globally interconnected than ever before. You may be just as likely to buy a part from a shop in Asia as you are to buy it from shop just down the road.
Access to the global supply chain is a good thing because it allows you to compare a greater number of potential vendors. Competition usually leads to increased quality and service at attractive prices. If you’ve leveraged the global supply chain to your benefit, you might source parts and materials from dozens or even hundreds of vendors.
Standardize and define your vendor management process, and you’ll find it easier to ensure quality, meet deadlines, and manage cash flow.
And therein lies the challenge. You have multiple vendors supplying hundreds or even thousands of different parts. All of those vendors may be working on different sets of terms, standards, and expectations. Quality and service could vary from vendor-to-vendor, as could payment terms and pricing.
That level of variation makes it difficult for you to estimate outcomes. Can you predict timelines with any level of certainty? What about defect rates? Or cash flow? If you can predict those things, how many man hours go into the analysis?
Also, how can you be sure that you’re using the right vendors? If you don’t have a set of standards or expectations for those vendors, there’s nothing to grade them against. How do you make the decision to look for alternatives?
Planning and projecting become easier when you eliminate points of variation from the process. Standardize and define your vendor management process, and you’ll find it easier to ensure quality, meet deadlines, and manage cash flow. Below are a few tips on how to streamline vendor management.
Determine your key criteria.
How do you evaluate vendor performance? What standards are most important to you? The answers to these question depend on your business needs. For some, cost may be the most important factor. For others, timely delivery, short turnarounds, or compliance to strict specifications may be the overarching need.
Take time to develop key performance indicators for each vendor. Some may vary based on the vendor but others may be universal across the entire supply chain. Create data points that are satisfactory or unsatisfactory for your goals. Then use those benchmarks as gauges to review vendor performance. If a vendor consistently misses the mark, you’ll know it’s time to shop around.
Communicate your plan and requirements early and often.
Once you have developed your standards, benchmarkes, or KPIs, it’s important that you communicate those numbers with your vendors. After all, it would be unfair to hold them to a benchmark that they don’t even know exists.
It’s also important to communicate that this measurement system is important to your success, and that meeting the benchmarks is a requirement, not a suggestion. When shopping new vendors, be open about your expectations. It’s better to learn early that a vendor can’t meet your needs so you can cross them off the list and eliminate wasted time.
Implement tools to track performance.
Having benchmarks and KPIs in place is well and good, but you have to have a process for measuring performance. While most of your vendors are likely honest, you probably don’t want to rely on them to self-report their performance.
This is an area in which an investment in technology can pay big dividends. There are a variety of tools that can help you measure and track vendor performance. For example, barcode scanning technology can track a part or container at every step in the supply chain, from the vendor’s facility to yours. That can help you measure their turnaround times and their ability to meet deadline.
Also, photo documentation software can help you measure quality metrics. This software takes images of parts and materials as they’re packed. When you unpack, you can inspect the part’s quality. If there’s a defect, you can compare the part to the image from the vendor’s end to see whether it had the issue when it left their facility. If they’re sending defective parts out the door, it might be time to look for another supplier.
Let your vendors focus on what they do best.
There’s a reason why you choose to work with outside vendors rather than produce everything yourself. You want to focus on what you do well so you can be more efficient. By the same token, why not give your vendors a hand so they can focus on what they do well.
For example, consider your packaging requirements. You may have strict packaging expectations to ensure quality. But your vendors aren’t great packagers. Some try, unsuccessfully, to meet your standards. Others don’t even attempt it. The result is excessive quality risk and inflated prices for subpar results.
You could open a vendor-focused hub that is geographically close to a cluster of your biggest vendors. The vendors minimally pack their goods and send to your hub. At the hub, your team - or your packaging partner’s team - unpacks those containers, bundles the parts together, and then repacks to your standards.
The results are clear and profound. You get the packaging quality you need and expect. Your vendors can focus less time on packaging and more time on production. And your vendors should save money on packaging and should also pass some of those savings onto you.
Review, review, review.
Developing a cohesive, documented vendor management plan is a good start, but it doesn’t mean anything if you don’t review it constantly. At Deufol, we’ve written previously about our commitment to Kaizen and the philosophy of continuous improvement. That idea can also be applied to vendor management.
Establish a cadence and process of meetings, reviews, and documented corrective actions. By establishing a regular process, you can build a foundation for continuous improvement and savings. If you don’t have a defined plan, now may be the time to start the process. As you grow and your network expands, the supply chain will only be more difficult to manage. Don’t wait until it’s too late to start developing your strategy.