Cutting Costs through Smart Partnerships

Consultancy: Process-based relationships integrating suppliers throughout product lifecycle key to profitable supply chains

Chapel Hill, NC  March 28, 2003  The world's most profitable supply chains revolve around process-based relationships that integrate suppliers throughout a product's lifecycle, according to a report released this week by research and consulting firm Best Practices.

Managers who overlook the "partner" aspect of a supply chain relationship consistently yield lower profit margins due to higher processing errors and supply costs, while market-dominating companies who establish strong supplier interaction reap substantial cost-saving results, the consultancy concludes in its report, "Best Practices in Supply Base Management."

Drawing on executive interviews and research, the study highlights supply chain management strategies and insights from more than 150 companies across 31 industries, focusing on how companies partner with suppliers to meet supply chain goals.

Through improved supply chain practices, the consultancy found, benchmarked firms reported cutting lead times and inventory by more than 50 percent and eliminating 100 percent of processing errors and paperwork.

"Supply chain performance is completely predicated upon two key statistics: the average process cycle-time at each node in the supply chain and the dispersion of the mean results of each node," said Chris James, vice president of Best Practices. "Successful strategic alliances can dramatically impact both metrics, generating cash savings and improved customer satisfaction."

Best Practices cites the example of a leading tech company that holds an executive review session with its top 20 suppliers twice a year. The company communicates its strategic and technological direction for the coming year, and its supplier provides reciprocal information.

Another company provides its suppliers with access badges to the company's facilities, which enhances communication between executives. It also sponsors joint trips with suppliers to trade shows to improve mutual understanding and new product development.

The best practices that Best Practices discusses in the report include:

  • Align supply chain management systems with strategic initiatives and goals. Companies that excel in supply base management partner and work together with their suppliers to realize mutual gains and achieve strategic goals. The first step in the partnership process is to understand the strategic initiatives of each organization. Establish a comprehensive plan that reflects your company's priorities before entering into customer-supplier partnerships.

  • Assess and measure supplier-partners through certification, audits and other quality reviews to develop effective partnerships. Leading companies assess suppliers before entering into partnerships or other business arrangements with them. Such initial and ongoing review can include surveys, audits and certification. Certification establishes a common language that in turn fosters an increased level of trust and understanding between partners. Certification also raises confidence in supplied services and materials, giving the company the freedom to rapidly  or even immediately  place those supplies in its own lines.

  • Excellent companies often certify suppliers at different levels, reflecting the strength, depth and maturity of the relationship. Initially, detailed audits and operational reviews are typically conducted to reveal supplier capabilities and potential synergies before supplier selection or certification occur.

Other best practices discussed in the report include:

  • Employing technology to improve supplier partnerships.

  • Integrating suppliers/partners into processes and development early.

  • Fostering communication with and between partners.

  • Reducing suppliers to reduce costs and share cost savings with preferred suppliers.

Measuring supplier performance is a critical activity that is suboptimally managed at most organizations, but a recent survey by technology consultancy Aberdeen Group and iSource Business magazine revealed that enterprises achieving the best results from their supplier performance programs share several best practices in common. Read the iSourceonline article "Best Practices for Supplier Performance Management" for more information on the Aberdeen/iSource Business study "The Supplier Performance Measurement Benchmarking Report: Measuring Supply Chain Success."