Supplier development refers to the collaborative efforts aimed at enhancing the capabilities and competitiveness of crucial and strategic suppliers. The objective is to improve various aspects such as cost, quality, cycle times and technology for the mutual benefit of both the manufacturer and the supplier.
Supplier development can take a systematic and strategic approach to enhance overall supplier performance or focus on improving specific supplier capabilities. It goes beyond existing contractual agreements and encompasses activities such as cost reduction, supplier quality improvement and collaborative product development involving both the manufacturer and the supplier.
Supplier performance management plays a vital role in identifying improvement opportunities while supplier development is the natural progression from performance management to enhancing performance.
The importance of supplier development is evident when you consider global events and their impact on supply chains. Globalization and other factors have imposed financial pressures on supply chains, compelling suppliers to do more with fewer resources while keeping costs low. Factors such as rising wages, increasing ESG regulations and commodity price fluctuations are examples that add operational and financial strain on suppliers.
Many suppliers have multiple factories across different countries, each with its own set of regulations and management styles. These complexities often lead to shortcuts being taken to meet customer demands, resulting in poor quality, unfair labor practices and financial instability.
Supply chain risks have also increased due to the expanding scope and complexity of supply chains. Differences in culture can impact communication and the urgency with which suppliers respond to customer demands. Additionally, factors like physical distance, communication challenges and intellectual property risks have emerged as risks and challenges associated with offshoring. When combined with material and labor shortages, natural disasters and pandemics, these issues result in poor quality, delayed deliveries, product shortages, supply chain bottlenecks and inadequate responsiveness, all of which significantly impact supply chain operations.
Sustainability and environmental considerations have led to increased requirements for suppliers to adopt green and sustainable practices. While finding new environmentally friendly suppliers is an option, it may not always be practical. Collaborating with existing suppliers to promote sustainability and ethical standards can be a more feasible approach.
There are numerous examples to highlight. Let’s just focus on one with the case of Nestlé. One notable instance of their work is the Caring for Water initiative. Through this initiative, Nestlé provides a set of tools and information that empowers their suppliers and partners to conserve water resources. By working together, they make a significant difference in water management practices.
Nestlé’s commitment to sustainable agriculture is further demonstrated through working closely with farmers and their involvement as a founding member of the Sustainable Agriculture Initiative. This platform serves as a knowledge-sharing hub, facilitating the exchange of information and expertise throughout the food supply chain. By promoting sustainable practices, Nestlé creates a more environmentally responsible and resilient agricultural industry in conjunction with their suppliers and partners.
Reduce Costs
Supplier development offers several benefits, including cost reduction. The pressure to reduce costs has made supplier development a crucial element in achieving successful cost reduction. Simply demanding cost reductions from suppliers on a yearly basis may yield short-term benefits, but without genuine operational improvements, they are not sustainable and can increase supply risks. Supplier development assists suppliers in eliminating costs and inefficiencies from their operations. For offshore suppliers, upfront investment of time and development resources may be necessary to mitigate risks and realize the potential of lower costs. Many companies have witnessed superior performance from offshore suppliers who underwent development compared to those who did not.
Improve Quality
Improving quality and cycle time are other significant advantages of supplier development. Enhancing the quality of products or services and reducing cycle time are classic objectives of supplier development. Quality and cycle time are key factors influencing performance risks.
Enhance Business Alignment
Supplier development promotes increased business alignment. Collaborating with suppliers on development initiatives helps foster alignment, collaboration and mutually beneficial relationships. Sharing business strategies and goals for supplier development enables suppliers to better understand and respond to customer needs. With improved insight, understanding, and trust, suppliers may bring forth new and innovative ideas for products and services that align with customer requirements and provide a competitive edge for both parties.
To find out more about how QAD’s Supplier Management solutions can support your supplier development efforts, please visit our website.
