Supplier Development Strategies and Outcomes

I was recently asked by Jon Stegner from Delphi Automotive to put together some research materials we completed on Supplier Development strategies. Delphi is currently attempting to initiate this strategy within their supply base, and Dave Nelson (VP of Purchasing at Delphi) has had success with this approach during the years he was head of purchasing at TRW, Honda of America, and John Deere.

Companies now know that suppliers of critical goods and services can provide major competitive benefits, in the form of lower costs, improved quality, on-time delivery, technological innovation, and customer service. As firms seek to globalize their businesses, they must also bring with them a capable supply base that can likewise support these global initiatives into new markets and businesses, as well as drive costs out of the supply chain.

The resulting report (496KB) provides some good examples of how some companies have initiated this strategy, with some key examples to consider.

Results of the research indicate that:

• Supplier development strategies can result in significant improvements in supplier performance, including

Reducing product defects by 5 – 90%,
Improving on-time delivery by 6 -15%,
Reducing order fulfillment cycle time by 30 – 80%,
Improving product performance by 10 – 30%

• Not all supplier development initiatives are successful – in fact, as many as 50% are not successful, due to poor implementation and follow-up.
• Most firms engage in reactive supplier development approaches (which addresses sporadic problems), as opposed to strategic supplier development approaches (which addresses continuous improvement of the entire supply base).
• Approaches to supplier development include rewarding performance (“The Carrot”), penalizing poor performance (“The Stick”), on-going detailed assessment and feedback (“Measurement”), and direct involvement in suppliers’ operations (“Hands-On Approach”).

• Research on which approach is most effective suggests that a combination of approaches may be appropriate under different circumstances, depending on the nature of the supplier, the type of commodity, and the management team at the supplier.

Click here to download the full report (496KB).