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Challenges in Supplier Management
Supplier management is a challenge for manufacturing companies—not just during the 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. The consequences of neglecting this can range from delivery delays to quality defects or even product recalls.
KBC has been supporting end customers and suppliers in the area of supplier management for many years. In this article, we’ll discuss selected areas of focus that we encounter time and again in our daily work and that you’re likely already 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 reviewed only on a sample basis. 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 at an above-average rate when managing subcontractors in the supply chain. The reasons for this are:
- A relatively small number of quality management staff compared to the number of customers
- a greater distance from the end customer and the impact of delivery and quality issues
- A prevailing pressure to reduce costs among animal feed suppliers.
This, in turn, leads to weaknesses becoming apparent that indirectly—or even directly—result in supply bottlenecks for the manufacturing company (end customer) or manifest as unrecognized quality issues passed down the supply chain. This is precisely where we come in with a suite of methods that empowers Tier-1 suppliers to overcome these challenges with their sub-suppliers. We analyze suppliers using a structured methodology to assess supplier management—from specification, through project and series production, all the way to sustainable optimization.
In addition, we work with you to define customizedpackages of measuresfor sustainable optimization in subcontractor management, such as:
- Focus on Specifications, Change Management, and Preparation for Mass Production
- Conducting a risk analysis of subcontractors
- Developing an audit plan and conducting audits
- Establishing a Structured Process for Problem Solving
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 when there are issues with one supplier or another? 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 irregularities arise in routine communication with Tier 1 suppliers, it is generally advisable to conduct a targeted review. Actively manage your suppliers’ communication and make a point of requesting updates from them. Check its effectiveness by joining in on a routine meeting from time to time. Take the time—it pays off.
Special Feature: Supplier of prefabricated components
In addition to the challenges listed so far, there is one more: set pieces.
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 have a direct competitive relationship?
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 maintain their master suppliers, which compromises data quality
- The end customer, who selected the subassembly supplier, communicates directly with the subassembly supplier and fails to involve the Tier 1 supplier
A supplier relationship of this kind 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 each party’s concerns can be openly addressed and clear rules for communication (such as reporting chains) and adherence to standard procedures can be agreed upon.