5 Ways to Improve Your Suppliers’ Performance and Value

Monday, December 1, 2014 , business management, by Rich Rafdahl

During my work with various clients, I have found that many organizations accept and tolerate suppliers who are providing sub-standard services and deliverables.  Sometimes these poor performing relationships have been in place for so long that they have become the norm and the potential benefits and value of the program are far from optimized.   These are not usually the critical suppliers of the core products or services purchased but rather the indirect and non-core spend categories but I have seen, Marketing survey questionnairefrom time to time, even key suppliers who were not routinely delivering excellence – creating a lot of unnecessary costs and time loss for the customer.

Keep in mind that if your company is not a major customer, routine preferred care is unlikely and many suppliers will not voluntarily elevate their performance for a mid-level customer unless they are challenged to do so.  If your organization is possibly accepting an average (or below) level of service from various suppliers or if you have not challenged them the same way your customers are challenging you, there is a very good chance that excess costs and unnecessary profit leaks exist within that supplier arrangement.  There is truth in that old saying “the squeaky wheel gets the oil”.

The following are 5 steps to improve your supplier’s level of service and deliverables.    

  1. Most importantly inform the supplier of what they are doing wrong?   I often find that certain business employees simply tolerate poor performance or problems because they feel they don’t have the time or leverage to straighten the supplier out.  I have also found, on occasion, that the supplier was unaware that their performance was less than expected until the buyer blew up or they lost the business. Every company and employee owes it to themselves to inform the supplier what you want and don’t want.   That is the first step in correcting the issue.

The best solution is to implement relevant KPI’s (Key Performance Indicators) that will capture the critical data associated with those supplier services and standards that are important to your business. Once these tools are in place, monitor the supplier performance on a regular basis. These reports are key in managing supplier performance but will also provide helpful credibility when you need to substantiate the facts and actual results.  Again, your supplier representative may or may not be aware of every issue but the more informed you are of the facts and true supplier performance the more legitimate your case –  when challenging them to improve.

  1. Record and communicate the various infractions to the contact who can solve the problem. If you don’t get satisfaction from your customer service person or rep, ask their manager to call you or meet with you – ASAP.  Often, this is all that is required to get the situation resolved.   In other words, measure, record and then inform the supplier contact who has the authority to resolve the problem.  Detailed and factual documentation goes a long way in dispelling any doubt in the suppliers mind that you don’t have a valid issue.
  2. Ask your Supplier for more services and support that are important to your business. Often suppliers can provide you with marketing funds, sales support on products you are promoting, incentives, rebates, credits for unsold product, creative freight and inventory arrangements such as consignment or allowances and accommodating return policies on products not selling, etc.   Also, if your supplier is a market leader and has excellence internal resources, technology and market expertise I encourage you to tap into that knowledge and expertise to advance your business potential.  Many suppliers are more than willing to help their customers become better customers but you need be acutely aware of their goals, strategies and market plans and how you can best leverage that information.  If your business is important to the supplier, you will be surprised what can be approved.
  3. Ask for extended Terms and additional incentives. If your company has been paying on time and/or your business has grown with a supplier over time, you have every right to ask for better terms such as 2{fd764c423169b107d7473585cb974f0964537b0b8c5dab730771f487497f0bbc} net 30 or net 60 day or some other payment arrangement.  Regarding rebates, a growth incentive that is tied to future volume may be a prudent request when your purchases are expected to grow in the future.  Also, if you are bringing on a new supplier who has just won your business, ask them if they can help you move some of the obsolete and slow moving inventory that you have.  They likely have sources and options that you do not have and since they are a new supplier, they likely want to make a good first impression and try to help.  The point is that you never know what may be possible, if you don’t ask.
  4. Be aware of your Suppliers Overall Performance and Leverage that knowledge. Periodically, invest in a thorough Supplier Performance Due Diligence.  Contact your Sales, Operations, Payables, Receiving and any other departments who may be impacted by the supplier in question.  It is always good to keep your finger on the pulse of your supplier’s performance and request a 360 degree audit from all company stakeholders.    You may be surprised what you learn by asking the various business associates that have direct and indirect interest in the program being reviewed. For example, you may find the supplier is notorious for inaccurate invoices or frequently ships the wrong product or partial shipments– which require a lot of time and effort to correct.

The primary goal is to motivate the supplier to consistently perform at a high level creating a competitive advantage for your business, but this information has also served me well when negotiating reduced pricing or better terms by providing further leverage to offset the inconveniences created by the supplier.

Obviously, what I have shared above does not address every possible scenario and potential improvement option but these 5 ideas should be a good starting point to improve your suppliers’ overall performance and value to your organization.

If you have any questions, please feel free to contact Richard Rafdahl at rafdahlr@crspecialists.net.  Good luck and Good Negotiating!

Did You Know!

The Boston Consultant Group concludes that a 5% reduction in procurement costs is the bottom line equivalent to increasing sales by 30%.

CRS offers its services on a contingency basis, with our fee tied to the savings secured and approved by the client.

CRS focuses on reducing the Total Cost of Procurement (TCOP) while maximizing value with key suppliers. This includes negotiating improvements in quality, services, performance requirements, terms, incentives & price change methodology.

CRS will manage all information with utmost respect and confidentiality.

CRS can develop and facilitate Reverse Auctions and complex RFQs, RFPs, RFXs and RFIs.

CEO of a film manufacturer said “What appealed to me initially was that CRS’s offered expertise in procurement and supply chain on a performance basis - contingent on results, with no risk. Within 6 months CRS provided savings in excess of $1 million".

CRS has assisted various manufacturers and distributor organizations in the food, packaging, spirits, electronics, computer, cosmetic, furniture, metals, services & construction industries to reduce their costs & increase savings.

“Cost Reduction Specialists were very easy to work with and helped us achieve savings in many areas including telecom costs, credit card processing fees, office supplies, distribution supplies and other indirect costs”- Controller Furniture Business

“CRS negotiated significantly lower prices for our temporary labor, labels and corrugated cartons programs resulting in savings that exceeded $400,000”. VP of Finance – Food Processing Organization

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