7 ways customers prevent good supplier performance

In an earlier post, I described what it takes to be an exceptional supplier. In that post, I said that good suppliers need good customers in order to enhance, even permit good performance. While the capabilities of supplier firms is important, so are their customer’s performance, business relationship and interactions with suppliers. Many supply managers will readily admit that more than half of supplier performance problems are due to the customer. Here are a some examples of supplier performance issues caused by customers:

  1. Orders submitted within less than the supplier’s lead time. Customers, often themselves subject to the vaguaries of order volatility, launch orders to suppliers in less than the suppliers’ known or published lead time. Then, when the supplier is unable to deliver within that compressed lead time, the supplier misses the delivery date and scores lower in on-time delivery.
  2. Turning your supplier into your banker through long accounts payable cycles can push financially weak suppliers into a worse financial condition.
  3. The customer does not update the product specification given to the supplier, and the supplier builds to the wrong specification. Or, the customers gives the supplier incorrect information on the order.
  4. Customers’ put pressure on suppliers to reduce costs with the threat of sending the product out to bid if the cost targets aren’t met.  Customers may suggest value engineering or even work with suppliers on cost reduction projects. However, some customers try to finance cost reductions from the supplier’s profit margin, before the supplier has had a chance to realize the benefits of the suggested improvements, leaving suppliers in a weakened position. This helps neither party.
  5. Customers require suppliers to use their approved sources with whom they claim to have negotiated the best deal. But sometimes the “deal” isn’t really a deal. Suppliers then have quality, delivery and/or responsiveness problems with these required suppliers who adversely impact their performance.
  6. JIT (aka Jumbo Inventory Transfer). Suppliers are often asked to shoulder the burden of additional inventory in order to help customers hold less inventory and increase inventory turns. Supplier who practice lean may readily be able to meet customer requirement without the additional inventory, as they are able to be highly responsive without materially increasing their own inventory. However, those whose operations are not demonstrating rapid cycle times may find the extra inventory a costly burden.
  7. Supplier material can sit on a customer’s dock for days, then be accepted in receiving. The supplier has shipped on time, but the customer’s system shows a late delivery. Another strike against the supplier in the area of on-time delivery

While customers cannot be held responsible for all supplier problems, they should be aware of how their business practices could adversely impact key suppliers. Being a good customer requires the willingness to address the problems your firm causes.The first rule is: do no harm. In a future post, I’ll discuss being a customer of choice.

Sherry R. Gordon

Author of:
Book: Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results
CloudDVD: Supplier Evaluation and Performance Management

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