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Challenges in Supplier Management

Supplier management is challenging for manufacturing companies not only in these times with Covid-19, but at all times.

In order to have purchased parts and services delivered continuously in good quality and on time, it is indispensable to know one’s own delivery chain, to follow developments and to actively initiate optimisations. The effects of neglect can range from delivery delays to quality defects or even recalls.

KBC has been attending to end customers as well as suppliers in the field of supplier management for years. In this article we deal with selected fields of action that we encounter again and again in our daily work and that will probably not be unknown to you.

Management of sub-suppliers

A manufacturing company is directly related to its Tier-1 suppliers, but not to Tier-n suppliers. The further away the supplier is in the supply chain, the more difficult it is for the manufacturing company to maintain transparency or even control. A loss of knowledge is almost inevitable.

Sub-supplier management is an integral part of the product and process audits that are carried out at regular intervals. At the same time, however, it is only one of many  components and can therefore only be checked in practice on the basis of random samples. Nevertheless, in the context of these audits, sub-supplier management should always be discussed in a specific and extremely detailed manner on the basis of a current product example in order to discover potential weaknesses. 

In our experience, the effort required for supplier development in sub-supplier management in the supply chain is increasing at an above-average rate. The reasons for this are:

  • a low level of staffing in the area of quality management in relation to the customer
  • a greater distance from the end customer and the effects of delivery and quality problems
  • a predominant cost-reduction pressure on the part of Tier-n suppliers.

This in turn leads to weaknesses becoming visible that occur indirectly or even directly at the manufacturing company (end customer) in the form of a supply bottleneck, or appearing as a passed-on, unrecognised quality problem.  This is precisely where we start, with a package of methods that enables the Tier-1 supplier to overcome the challenges with its sub-suppliers. We analyse suppliers by means of a structured methodology for checking supplier management from specification, project and series processing through to sustainable optimisation.

Furthermore, we define individually agreed packages of measures for sustainable optimisation in sub-supplier management such as:

  • focusing on specification, change management and series start-up preparation
  • carrying out a risk analysis of the sub-suppliers
  • creating an audit plan and performing audits
  • establishing a control process to solve problems

Do not underestimate the communication factor

Do you communicate regularly with  your  Tier-1 suppliers? Do you know how they  communicate in the further supply chain? Are you informed in good time and proactively if there are difficulties with one or the other supplier? Do your Tier-1 suppliers focus to the necessary extent on sub-supplier management?

All these questions are important and you should know the answers. You can request this on a random basis in the context of the process audits already mentioned, but targeted questioning is called for at the latest in case of anomalies in the regular communication with the Tier-1 supplier. Actively control the communication of your suppliers and consciously demand it. Check the effectiveness by joining regular meetings. Take the time, it’s worthwhile.

Special feature: directed part supplier

In addition to the challenges listed so far, there is another: directed parts.

If the end customer defines a directed part, the sub-supplier is usually also determined irrespective of whether or not the Tier-1 supplier already has an active supplier relationship with this sub-supplier. This can be critical if, for example, the sub-supplier is a direct  competitor of the Tier-1 supplier, because which buyer wants to attend to a supplier with whom a direct competitive relationship exists?

This can cause the following problems:

  • The directed parts supplier is controlled in parallel to the normal supplier control process (e.g. with regard to master data maintenance, change management, communication)
  • Tier-1 suppliers do not maintain the directed parts supplier in the same way as the regular suppliers in the ERP system, as a result of which the data quality suffers
  • The end customer that selected the directed parts supplier communicates directly with the directed parts supplier and forgets to involve the Tier-1 supplier

Such a supplier relationship is critical and must be treated as a priority. Therefore, our recommendation is:

Take such constellations seriously and invest time in a consultation or workshop in which the sensitivities of each party are openly addressed and clear (playing) rules of communication (reporting chain, etc.) and compliance with rules processes are agreed upon.