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Challenges in Supplier Management

Supplier management is a challenge for manufacturing companies not only during the current COVID-19 pandemic, but at all times.

To ensure a steady supply of high-quality purchased parts and services delivered on time, it is essential to understand your own supply chain, monitor developments, and actively drive optimization efforts. The consequences of neglecting this can range from delivery delays to quality defects or even product recalls.

For years, KBC has been supporting end customers and suppliers in the area of supplier management. In this article, we’ll discuss specific areas of focus that we encounter time and again in our daily work and that you’re likely familiar with.

Management of Subcontractors

A manufacturing company has a direct relationship with its Tier 1 suppliers, but not with its Tier n suppliers. The further down the supply chain a supplier is, the more difficult it is for the manufacturing company to maintain transparency, let alone control. A loss of knowledge is virtually inevitable.

Subcontractor management is an integral part of the product and process audits conducted at regular intervals. At the same time, however, it is only one of many components and can therefore, in practice, be assessed only through spot checks. Nevertheless, as part of these audits, subcontractor management should always be discussed in concrete and highly detailed terms using a current product example to identify potential weaknesses.

In our experience, the effort required for supplier development increases disproportionately when managing sub-suppliers in the supply chain. The reasons for this are:

  • A relatively small quality management staff compared to the number of customers
  • a greater distance from the end customer and the impact of delivery and quality issues
  • significant pressure on animal feed suppliers to reduce costs.

This, in turn, leads to weaknesses becoming apparent that indirectly—or even directly—manifest as supply bottlenecks for the manufacturing company (the end customer) or surface as unrecognized quality issues passed down the supply chain. This is precisely where we step in with a suite of methods designed to empower Tier 1 suppliers to address these challenges with their own sub-suppliers. We analyze suppliers using a structured methodology to review supplier management—from specification and project and series production through to sustainable optimization.

In addition, we work with you to define customizedaction plansfor sustainable optimization in sub-supplier management, such as:

  • Focus on specifications, change management, and preparation for series production
  • Conducting a risk analysis of subcontractors
  • Developing an audit plan and conducting audits
  • Establishing a structured problem-solving process

Don't underestimate the importance of communication

Do you communicate regularly with your Tier 1 suppliers? Do you know how they communicate with the rest of the supply chain? Are you informed in a timely and proactive manner if there are issues with any of your suppliers? Do your Tier 1 suppliers place the necessary emphasis on sub-supplier management?

All of these questions are important, and you should know the answers. You can check this on a random basis as part of the process audits mentioned earlier; however, if any issues arise in routine communication with Tier 1 suppliers, a targeted review is warranted. Actively manage your suppliers’ communication and make a point of requesting updates from them. Check the effectiveness by joining in on a routine meeting every now and then. Take the time—it pays off.

Special feature: Supplier of prefabricated components

In addition to the challenges listed so far, there is one more: fittings.

If the end customer specifies a component, this usually also determines the sub-supplier, regardless of whether the Tier 1 supplier already has an active supplier relationship with that sub-supplier. This can be problematic if, for example, the sub-supplier is a direct competitor of the Tier 1 supplier, because what buyer would want to manage a supplier with whom they are in direct competition?

This can lead to the following problems:

  • The component supplier is managed in parallel with the standard supplier management process (e.g., with regard to master data maintenance, change management, and communication)
  • Tier-1 suppliers do not maintain their component suppliers in the ERP system in the same way they do their master suppliers, which compromises data quality
  • The end customer who selected the component supplier communicates directly with the component supplier and fails 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 situations seriously and invest time in a coordination meeting or workshop where the concerns of each party can be openly addressed and clear rules for communication (such as reporting chains) and adherence to standard procedures can be agreed upon.