Supply Excellence

Supplier Site Visits Part #1: Do your Prework

July 25th, 2008 · by Deitra Curry · No Comments · best practices, contract management, supplier management, supply management

No matter how good your relationship may be with your suppliers, there’s always room for improvement. That improvement may be in the form of greater process efficiency, product development collaboration, minimizing supply risks, or a host of other areas. But at the end of the day, what you’re really looking to do is reduce costs (although those ‘cost reductions’ manifest themselves as price cuts, reduced risk, greater efficiency, etc.).

One wrench in your tool kit should be supplier site visits. If done well, these site visits can provide you with greater leverage in supplier negotiations, with only a minor incremental workload on you personnel.

It’s best to break the supplier visits process into three parts; Prework, Execution Phase and Post Analysis. I’ll go through best practices for Prework today and dive into the other sections in parts #2 and #3.

So, what should you do before actually setting foot on your supplier’s site?

  • Contract Review - Any and all contracts with the vendor in question need a thorough review in order to define the scope and objectives of the site visit. Just because you come across something that’s an opportunity for improvement, doesn’t necessarily mean it’s actionable since your current contact may tie your hands (although it’s good to note for next time you negotiate that aspect of the contract). Therefore, this is often the when the scope of your current efforts evolves.
  • Supplier Data Request - Defining the opportunities, scope and objectives will leave you with some questions you can’t answer alone. So requesting the right data from your suppliers is a major help in the prework process. The key here is to walk a fine line with your vendor. Presenting your request in the context of vendor development rather than cost cutting will help uncover the right information without raising too many red flags. For example, asking for org charts and disaster recovery plans is fine, while requesting full cost breakdowns of your components may put them on the defensive.
  • Scheduling - Set expectations with the supplier about what you want to accomplish with your visit and work with them to identify who on their end needs to be available. The last thing you want is to go through the time and expense of going onsite only to realize the people you really need to meet with are at Disneyland that week.
  • Analysis - Once you’ve done the homework, meet with your stakeholders and category managers to review the data, revise your objectives and develop your hypothesis.

With those steps checked off your list, you’ll be ready to go onsite with clear goals and minimal chances for surprises.

Deitra Curry is a Senior Sourcing Consultant in Ariba’s Spend Management Services group. Ariba Services Category Manager Justin Falgione contributed to the research and analysis in this post.

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LCCS: Focus on Who, What, Where and How

July 24th, 2008 · by Haiying Xie · No Comments · LCCS and trade, best practices, outsourcing, sourcing, supply management

In his novel Anna Karenina, Russian writer Tolstory said, “happy families have the same reasons why they are happy, unhappy families however all have different causes.” The same sentiment can be applied to those companies who have implemented Low-Cost Country Sourcing (LCCS) strategies, but received completely different results.

There are many successful stories of LCCS, and yet, there are many more unsuccessful stories. Indeed we regularly hear complaints of how troublesome it is to buy from LCC regions and how unworthy it is in comparison with the required efforts. In recent years, when wages, prices and transport costs are rising in historically low-cost Asian countries and shipping capacity is tight, many are starting to question the benefits of LCCS.

There is no doubt that production input costs do differ across regions. Labor, land, overhead, raw materials, energy, employee benefits costs vary…and therein lies the opportunity. The question is What, Where, Who and How do you capture the difference? Successful companies are those who are able to answer those questions. Unsuccessful companies can fail if any one of these four questions is not answered correctly.

Of these four questions, the most difficult to answer is How.

I call the first 3 questions (What, Where and Who) “external causes.” One can study the market or simply do some due diligence on your competitors; what they are buying in the LCC, from where and from whom.

But in order to answer the “internal issue” of How and drive a successful LCCS program, a company must focus on the following:

  • Does the C-Level support of LCCS initiatives? Purchasing alone cannot make LCCS successful. It will inevitably touch other functions, such as development, quality, logistics and production. Skeptical or resistant attitudes from these functions could greatly hamper the successful implementation of LCCS strategy. Top level management support and attention can solve potential conflicts among different functions and help buyers avoid wasting time and energy in solving internal conflicts.
  • Is the company prepared to invest for long-term benefits? LCCS is a strategy for long-term benefits, not a low-hanging fruit. It is necessary to have good, experienced people focusing on this LCCS initiative. Freeing up these people’s capacity or traveling to meet suppliers regularly requires additional investment. Failure often happens when organizations pile LCCS tasks (with too little incentives) onto already overloaded people.
  • Are processes in place to work with LCCS suppliers? Working with a LCC supplier is not as simple as receiving goods/services from a supplier at a lower price. It requires considerable preparation and cultivation early in the relationship. And then there are the longer transport times, need for increased warehouse capacity, well calculated additional inventory costs, and adjusted production schedules to consider.
  • Is the company culturally prepared to work with LCC suppliers? Do the sourcing and procurement staff have the language skills and cultural awareness to work with the LCC country? Does the staff have any perceived ethical issues about working with LCC suppliers instead of local companies? Any small misunderstandings could potentially lead to huge mistakes in the process.

Companies must understand that implementing LCCS strategy is much more demanding than traditional purchasing. It is not just about finding and evaluating a new supplier, conducting negotiations and counting the savings. It requires change management and internal marketing to a receptive audience. Internal resistance can be hard to detect and describe, but it is lethal to the success of LCCS initiatives. In fact, when a company has a hard time identifying why and how their LCCS initiative failed, internal resistance is often the root cause.

Haiying Xie is a Senior Category Manager in Ariba’s Global Sourcing Organization. Based in Germany, Haiying works with companies throughout EMEA.

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