Most supply chain professionals have faced the challenge of a difficult supplier that you cannot replace. Your difficult supplier’s product may be designed into your product, or it may be a unique technology or any number of other reasons that make it impractical to change suppliers. When facing these situations, you have options that can be highly successful if handled skillfully.
Case Study:
Company A purchased a highly engineered product from a supplier over seventeen times its size. They were a small customer and had no other viable options for this product. Company A’s approach had delivered consistent price increases and a legacy of poor communication. Our team’s challenge was to gain a competitive cost advantage and rebuild a productive supplier relationship. Since the past approach to force the supplier had failed, we began with an internal assessment of actions we could take. We understood that both buyer and supplier were mutually responsible for this poor relationship, but that to achieve our goals, we had to take the first steps.
Analysis – Our initial analysis included:
- Listen: The supplier had been suggesting many actions to reduce costs that had never been considered.
- Cooperation: Appropriate aspects of the strategy and specifications were withheld from the supplier. Rather than discuss design modifications when they were first known, the habit had been to demand last-minute changes.
- Visibility: The product’s cost structure and how to effect costs were misunderstood.
- Learn: We conducted a product tear-down analysis of both the physical and surrounding processes.
- Blame: A “blame and shame” culture had evolved between buyer and supplier, leading to an adversarial relationship in which cooperation was nearly impossible.
Actions – Based on our findings, we implemented these actions:
- Ideas:
- The list of supplier-supplied suggestions was grouped as an immediate action, short-term, long-term, and not applicable.
- In cooperation with the supplier, we implemented the immediate action items. This small step yielded small but measurable results, and, more importantly, both sides began to look at each other as professionals.
- The next step was to set up an implementation timeline with milestones for short-term and longer-term optimization ideas.
- Visibility:
- We held joint product tear-down sessions to help both teams work together and bring visibility to the product’s design-driven cost structure. These sessions also produce numerous immediate and longer-term cost reduction ideas that supported our performance and quality goals.
- We jointly tracked progress on all improvement projects and coordinated with each other at least weekly.
- While keeping certain sensitive information confidential, we opened our design and related challenges to the supplier and discussed goals and a timeline for improvements.
- Communication:
- We established a communication process that involved sharing appropriate information and specification early in the development process to obtain the supplier’s perspective.
- We held listening sessions with the supplier to hear from them what could be done to reduce costs and improve performance.
- We came to meetings prepared to show that we had taken concrete actions based on the supplier’s suggestions. This step was taken not to be submissive to the supplier but to show by our actions that we had made profound changes.
Results – We grouped results into two categories—measurable and process. Measurable results were items that could be numerically quantified. Process results were subjective measures based upon how well each side perceived we were communicating and working together.
The most telling results occurred after Company A merged with a competitor. We discovered that we had achieved a lower cost even though our volume was less than half that of the competitor. The supplier explained to them, “Company A listened and was easier to work with and received a disproportionate amount of engineering attention. We jointly came up with many ideas to reduce costs which were promptly implemented; you did not.”
Summary – The proof was clear. Communication led to coordination that resulted in cooperation. Innovations flowed in as we eliminated silo-thinking. Persistence and standard processes achieved this condition; the results were measurable and sustainable.
