In uncertain times, manufacturers are on the hunt for ways to make operations more efficient and cost-effective. While many manufacturers may have squeezed the last ounce of productivity from their internal processes and production lines, there’s one area that remains largely untapped: the buyer-supplier relationship.
Hidden within the emails, calls, and faxes that travel between buyers and suppliers are unlimited opportunities for increased transparency and internal alignment. While the relationship itself is sacred, the means of communication limit a company’s agility. And if we’ve learned anything from the COVID-19 crisis, it’s that agility is the name of the game.
Cracking open these relationships means asking your operations teams targeted questions and helping them see the impact of their relationships on keeping the lines moving. Taking a closer look at several successful manufacturers, we found that they ask the same three questions in each of their weekly meetings.
1. What inventory can we ship next week?
Discrete manufacturers in particular often struggle with managing inventory. No one wants a $50 part to hold up a $500,000 order, so they might order more than they need. On the flip side, sometimes they’ll risk a late fee in order to avoid overstocking more expensive or custom materials.
The goal is, of course, to keep as little unnecessary inventory on hand as possible because carrying inventory costs money. The longer it sits, the more you spend—all while patiently waiting for customer orders or late materials in order to ship product and recognize revenue.
By asking your operations team this question, they begin to share accountability for unused inventory, and it becomes a team priority to get revenue-driving goods out the door ASAP.
2. What do you need to make sure those orders ship?
Don’t leave the meeting with only a promise that those orders will ship. Take the conversation one step further and ask about the contingencies of those orders. Are there still a few parts en route to you? Do some suppliers regularly run late (and could they benefit from a polite nudge)?
Once you know where the potential weak spots are, you can come up with a game plan to protect against them. Maybe your buyers need to call a few suppliers and check in. Maybe they need to push out other orders. Whatever the protective measures your team needs to make, take the time to discuss them.
3.What can we no longer ship next week?
Orders get pushed out all the time. This could be because a customer called and said they didn’t need your products right away or because a supplier couldn’t hit the agreed upon date. These minor disruptions happen in almost half of all orders, with varying degrees of impact on your business.
But no matter how big or small the change, each disruption has the potential to cause ripple effects if left unmanaged. If a large customer order is pushed out by a few months, buyers must move quickly to inform their suppliers and push out their own delivery dates or cancel orders so that the company doesn’t wind up with a stockpile of expensive inventory and a pending PO that could be cancelled at any time.
Asking this question helps your operations teams and buyers look out for unnecessary expenses and opportunities to conserve cash.
Three Questions, Loosely Translated
The answers to these questions may seem too “in the weeds” for executives with a lot to balance, but pushing your team for responses has tangible benefits. While you’re asking your team about the tactical side of the business, these questions also help reveal important financial information.
Looked at from a different perspective, the questions become:
- How much revenue can we recognize?
- How much revenue is at risk?
- Which expenses can we defer?
These are big, hairy questions that are challenging for most manufacturers to answer, which is why it’s important to lean on the buyer-supplier relationship to help. And we’ve found that, when given the right tools, answering these questions gets a whole lot easier.
Give Your Team the Tools They Need to Answer
The reason these questions are so difficult to answer has little to do with the people involved and has a lot to do with how your buyers and suppliers communicate with each other. Passing PDFs through email is an opaque experience and pulling specific pieces of information from those channels is darn-near impossible.
In order for your team to answer these questions without saying, “I’ll need to look through my email and get back to you on that,” they need new communication channels.
More specifically, they need channels that allow them to discuss purchases at the line-item level. If a single part, buried in the middle of a PO with dozens of lines, holds up an order, they need a way to communicate back and forth about only that part. This requires moving the conversation out of email and into software.
Similar to a supplier portal but built for collaborative communication, SourceDay was designed to allow manufacturers complete visibility into every line item. Because we realize every part matters. Every part can impact the bottom line—whether their price reads $50, $5 million, or $0.05.
And don’t get us started on what this means for your accounts payable team.
Learn more about how SourceDay can help you get to the bottom of these essential questions today.