Supplier development: investment or expense?

Supplier development is an interesting and complicated topic. ISM defines it as : “A systematic effort to create and maintain a network of competent suppliers, and to improve various supplier capabilities that are necessary for the purchasing organization to meet its competitive challenges.” Many medium and large-size firms claim to do supplier development. Supplier development approaches vary widely and can mean different things to different people, functions and companies. The details and results vary greatly depending on factors such as:

  • Executive support (understanding of the benefits and ROI) and budget
  • Existence of internal supplier development resources and expertise
  • How and which suppliers are chosen for development
  • Whether it is done within the context of a customer initiative (i.e., lean, Six Sigma, SPC, etc.) or as a result of supplier performance issues
  • How comprehensive or targeted the approach is (i.e., teach a supplier a specific skill or subject or a multifaceted, comprehensive development program)

Whether management sees supplier development as an investment with payback or an expense that suppliers should be paying for themselves varies by factors such as:

  • The financial health of the customer company and its ability to invest in its future
  • The extent to which the customer sees value in developing and/or improving relationships with its suppliers, let alone helping suppliers improve their capabilities
  • Whether the customer views its performance, costs, quality and competitive position in the marketplace as dependent to some extent upon the capabilities and performance of its supply chain
  • Its culture in the area of employee developmentĀ  (i.e., does the customer see its own employees as assets to invest in and develop?)
  • Its culture relative to the pursuit of continuous improvement (CI) internally (i.e., does the firm both understand and practice some form of continuous improvement?). If a company sees no need to pursue CI, then it’s unlikely that it will either espouse or be able to communicate its importance to suppliers.

Besides the issue of a firm’s relative size and financial situation, if the other four factors mentioned above do not exist, then chances are slim that it will pursue supplier development.

I’ll discuss approaches to supplier development in the next post.

Sherry R. Gordon

 

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