6 Strategies for Developing a Preferred Supplier List
Top strategies for creating a list of dependable, top-tier suppliers
The business world doesn’t always advocate “choosing favorites,” but for electronics buyers who want to rely on a dependable and affordable supplier base, the strategy is almost mandatory.
“When buyers are searching for suppliers, they must look for companies that can be true partners in helping them serve their customers,” says Rick Pay, principal of supply chain and operations consultancy The R Pay Company, LLC, in Portland, Ore.
“The top 10 suppliers, where companies spend 50 to 80 percent of their materials dollars, should be those that can provide a wide range of items, very reliably,” Pay continues. “Reliability is the key consideration; especially in companies that use Just in Time (JIT) materials flow and other methods of keeping inventory levels low and customer satisfaction high.”
To help electronics buyers cull through their list of vendors to find that “top 10,” Pay offers these six tips for success:
“When buyers are searching for suppliers, they must look for companies that can be true partners in helping them serve their customers,” says Rick Pay, principal of supply chain and operations consultancy The R Pay Company, LLC, in Portland, Ore. Get your company’s engineers onboard with the selection process. Manufacturing engineers, for example, can be sent out onsite to evaluate suppliers and work with them to help improve service levels. “Have your engineers assess your current supply base, the providers’ capabilities and how well they’re meeting your firm’s needs,” says Pay. “The input that comes out of this exercise will be invaluable when developing a preferred supplier list.”
- Look beyond bottom-line costs. “Top suppliers manage the total cost of ownership (TCO), which is much more than part price,” says Pay. TCO includes logistics, cost of obsolescence, cost of quality and several other components of cost that can have a major impact on the cost of doing business with them.
- Award extra points to suppliers who are willing to partner. “Supplier partner programs can yield big results in bottom-line improvement,” says Pay. Suppliers often can help in product design efforts to recommend alternative designs and materials to help reduce costs and improve bottom-line results. “Suppliers should be used as experts to work with design teams for significant materials cost and part count reduction,” he adds.
- Open up with your suppliers. Talk to them openly about important metrics such as usage, current requirements and any requirement changes that could be coming around the next corner (due to an increase or decrease in a certain business line’s capacity, for example), as a way to keep suppliers in the loop on the firm’s needs. “You have to be willing to talk about your usage, leads, and other company-specific issues with your top suppliers,” says Pays, “in order to create a hand-in-hand relationship versus an ‘us-versus-them’ mentality.”
- Look for innovative supplier-partners. Particularly in electronics, says Pay, the parts suppliers lend themselves very well to auto replenishment systems such as vendor-managed inventory (VMI) and/or Kanban (a Japanese manufacturing system in which the supply of components is regulated through the use of a card displaying a sequence of specifications and instructions, sent along the production line). “Top suppliers should be able to help develop innovative approaches to supply chain management,” says Pay, “resulting in higher inventory turns and lower overall cost.”
- Review the list regularly, but don’t change it too often. If you pick the right suppliers to populate your list of “favorites” at the outset, says Pay, you won’t have to switch them out too often. So while supplier performance should be measured quarterly and adjustments/replacements should be made when needed with annual reviews, these alliances should last for several years or more. “The right suppliers,” Pay says, “will be able to move with your organization as it changes and grows.”
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