Why Smaller Entities Struggle with Developing World-Class Suppliers

Smaller companies need world-class suppliers just as much as larger entities. Unfortunately, supplier development can be a lot more challenging for smaller companies. There are various reasons for this. However, in many cases, small companies struggle, especially with developing lean six sigma strategies that can make all the difference.

Why Small Companies Struggle With Supplier Development 

There are many very good reasons why small companies struggle to create a chain of world-class suppliers. 

1. Purchasers wear multiple hats. Often purchasing is done by the owner or the office manager. This means that the amount of time available to devote to purchasing is limited. As a result, supplier development is often the first thing to fall by the wayside. It also means that they lack professional training on best practices.
2. Small companies find it hard to hire and retain top talent. Some of this is due to the perception that small companies give less room for career growth. In other cases, it is for legitimate reasons, such as the company struggling to provide competitive benefits.
3. Smaller firms often wrongly believe they have no leverage with their suppliers and therefore do not want to waste time on supplier development. They feel that a supplier will not be significantly concerned about losing their account. They also legitimately lack the tools to track and manage improvement.
4. Engineers and designers often make supply choices without consulting supply chain people. This may result in high-quality parts being selected, but with little concern for shipping distance and other issues.
5. Many small entities have an adversarial relationship with their suppliers, with limited trust, low levels of service, and little to no exchange of ideas. Suppliers can often be a source of ideas for future improvement.
6. Small companies have to perform all of their incoming inspection on all materials, typically with limited resources. This can contribute to the lack of trust.
7. Purchasers have no time to visit suppliers, nor to track and report supplier performance.
8. Most small companies cannot afford the kind of software needed to digitize purchase orders and typically still use physical paper purchase orders. Suppliers may also require physical orders on small accounts.

How Lean Six Sigma Can Help Develop World-Class Suppliers 

Small entities can develop world-class suppliers. First, you need to have a plan, and it needs to be in writing and worked on with input from everyone, including your suppliers.

Planning also allows you to involve supply chain people during the development cycle. Engineers can then work with you to select the best products. As a result, the tendency for each product cycle to choose different suppliers is reduced and, ideally, eliminated. At the same time, you must ensure you have enough backup supply options to maintain continuity and competitive pricing.

Use the 80/20 rule to focus competitive bidding where it makes the most difference: total cost of ownership performance. This takes into account all the costs of doing business with a supplier, including things like lead time and inventory. Too many small companies consider only the piece price and shipping costs, not the costs of, for example, a defective part resulting in a product recall. Make sure that you look into anything that will speed up inventory turnover.

Involve the financial people and ensure they inform you of payment term norms. This ensures that you are not tricked into nonstandard (and often substandard) contracts.

Remember that with LSS you are not in an adversarial relationship with your supplier. Instead, your relationship is a complementary one. Your suppliers are your partners and have a stake in your success. This is perhaps the most important thing to remember. An adversarial relationship that cannot be resolved may mean it is time to cut a supplier loose.

Is your small firm struggling to get world-class suppliers? MetaOps can help! Contact us to find out how we can help you get it done and work on supplier development that will lead you to success.