MRO Today - Effective supplier relations

Effective supplier relations

by Dr. Robert A. Kemp

Senior leaders recognize today that MRO supply management is an important strategic process and that its importance increases every day. We also understand that our responsibilities as supply managers are to search for, identify and develop methods that improve our performance from several critical perspectives. One of these is supplier evaluation.

This article begins a five-part series on evaluating suppliers and benchmarking supplier performance to raise operational efficiencies and effectiveness.

MRO purchasing generally equals 10 to 25 percent of the total spend for many organizations. We can enhance our overall value to the organizational supply system by better managing the MRO suppliers.

This series of articles will include the function and content of traditional and Web-based supplier evaluation models. We also will want to understand how to develop metrics and processes to measure supplier performance. Finally, we will see how you can build your personal value in the organization by building your MRO suppliers. This first article justifies the process and introduces the four lessons to follow.

Information gained from formalized supplier evaluation processes should be the foundation for all actions concerning a supplier — favorable or remedial and from selection to dismissal.

Favorable actions include supplier selection, development, recognition and the award of additional business at the expense of less satisfactory suppliers. Remedial actions include all efforts to expedite performance through communication, corrective action aimed at improving performance, and the ultimate cancellation of contracts and removal from the approved supplier list.

From this definition, it’s clear that we have a supplier evaluation program, even if we don’t recognize it as such and manage it as a formal supply management program. Supplier evaluation should be a formal supply management program, and our suppliers should know how it works and be involved with the process. The ultimate goal is improved supplier performance, and our tools are established metrics and meaningful supplier evaluation processes applied correctly and consistently over time.

Acknowledging the fact that there is never sufficient resources to do everything that should be accomplished, we must prioritize our supplier evaluation processes. Our first decision is defining the sequence and schedule of suppliers to be evaluated. To do this, rank suppliers by strategic value using the “A, B, C” rule. Concentrate the efforts on those few important suppliers in the “A” category. Certainly, a careful evaluation is a major part of any remedial action to help a troubled supplier that we want to keep in our supply chain.

Similarly, we want to evaluate any significant new supplier during the selection process. Also, we need to carefully evaluate any existing supplier under consideration for an important new role in our supply chain.

Finally, annually evaluate the remaining suppliers in the “B” and “C” categories as time and resources permit. Note that by first carefully reducing the list of suppliers, we make our evaluation process more manageable in terms of limited available resources.

Supplier evaluation is always a team process. Typically, teams include quality, manufacturing, engineering, accounting and finance, supply management and others when appropriate. Team members must be in a position to recognize quality, delivery, service, cost and other points that the team identifies as important to a particular supplier or supply process. The team is responsible for its annual schedule and must be in position to respond to any negative supplier behavior, unexpected trends or situations.

This article has defined the process and established ways to categorize suppliers for evaluation. To prepare for the next article, please do three things:

1) evaluate your existing supplier evaluation system;

2) determine the size of the supplier list and categorize them by the “A, B, C” process; and,

3) examine your team process for evaluations.

My next MRO Coach article will look at the advantages and disadvantages of the traditional supplier evaluation models. As we do this work, we should remember that our goal is to improve supplier performance and build value in the supply chain.

Robert Kemp is a consultant, speaker and the former president of the Institute for Supply Management. He can be reached at kempr@mchsi.com.

Check out other MRO Coach stories by Robert Kemp.