Another Ducking Digest?!
August 14th, 2023: Effective Small Manufacturer Supplier Management
Welcome to Another Ducking Digest. This is a weekly 15-minute news show. Sometimes we go a little bit longer depending on how excited Lindsay is about our topic. Lindsay has 30-plus years’ supply chain experience and most recently served as the SAP of supply chain for a mid-market manufacturer.
Each week we talk about a topic that is relevant to people working for a small or mid-sized manufacturer. There’s a lot of content and things that are shared for large manufacturers, so Lindsay and I both feel that small and mid-size manufacturing content is a bit underserved. The purpose of this show is to share really relevant topics with those of you working for those smaller firms.
I also want to encourage you to drop us a note in the comment throughout. Tell us where you’re joining us from today, and then we’d also like to hear if there are specific topics you would like us to cover in a future show. We want to make sure the content we’re sharing is really relevant, meaningful, and impactful for this audience. So, if there’s anything that’s top of mind, a challenge, or something you’re working on at your organization and you’d like Lindsay to cover it on this show, drop us a note in the comments.
So today we are going to be talking about supplier management for small manufacturers. Lindsay, would you like to have you before you kind of go into what that looks like, set the stage about the typical number of suppliers, typical spend? What are we talking about when you mean a small manufacturer? Yeah, great. Thank you, Sarah. Great, great tee-up. What we’re going for here is trying to provide the small manufacturer context versus the media content, because the media content talks about the heavy polish.
So, what’s typical? Good grief, you know, that’s kind of like saying what’s handsome or what’s prettier, you know, what’s the best dog to have, you know? Typical… you know, I threw out in my world, typical has been a couple of hundred suppliers, 10 to 20 million dollars of spend, and the parity, parity one-on-one parity between purchasing, placing PO lines, and daily receipts. That typically lines up. Now, you know, is it a lie or is it a joke, does it resonate? The point is the point because, you know, if you’re well, Purina, for example, maybe 12 suppliers, a whole different world. But maybe that’s a bad example since they’re a heavy hitter. The point is that we’re going to divide, try and look at our one, we’re going to know how many suppliers we’ve got. Two, we’re going to divide them up, and we’re going to divide up the pie different ways by category, by type, by dollars, and why? Why divide it up in different ways? Well, I mean, we’ve all heard the mantra, supply chain, every supply chain is unique. Well, you betcha they’re very unique, they’re very different. So, it behooves us, we want to be understood, we want to communicate clearly with non-supply folks. We have to answer the basic question: Who am I? Do what if I? So, if someone asks how is the supply chain going, rather than say, you know, it’s crazy or tell a rambling Lindsay story about the least popular supplier of the day, to be able to simply say, “Working from a base of 200 approved suppliers, actively engaged with 150 this month. Strategic supplier engagements are solid. A couple of concerns with Asian importers, no adverse PPV this month.” You know, be able to shrink it down to a picture. Lindsay, I call that having your elevator pitch, and that’s a good analogy. I like that.
You know, and so the categories. The categories, you know, one way to do it is by category. So, all we’re trying to do is say, ‘What am I dealing with here?’ It’s not an algebraic formula; it’s a guideline. So then, Lindsay, when you say categories, I think maybe for the audience, let’s start by having you break out the four different direct spender direct material supplier categories. I think that’d be a good way to set the stage, right? So, maybe back into the important one, but we have commodity suppliers that perhaps we buy a target from our cold-rolled steel. We have operational suppliers which are very interesting; that’s where we’re in bed with someone, there’s an agreement, there’s a contract, there’s maybe we’re a multi-division company, and we’re obligated to buy from another division. There’s tactical, which is the day-to-day stuff that we can go out shopping if you will, from multiple suppliers. And then, getting all that out of the way, if you will, the fourth category is strategic, and they’re the ones that can make or break us. They’re the ones that will shut down production if they don’t deliver. They’re the ones with the nice technology or IP, the long lead times, and maybe the global sourcing element, but a critical component. You know, probably perhaps sole source, they seem to go hand in hand, right? So, you know, when we say strategic, you know, we’ve got to be able to explain what does that mean? And then, the concentration, look and be able to know our concentration. Is it an 80-20 thing? Is it the traditional 80-20? A lot of folks contend that that’s always true. Well, not always. You know, if we’re in the printed circuit world, it may be Death By A Thousand Cuts; that it’s 80% of the spend is with 40% of the suppliers, you know. So, it’s there’s far more, there’s far fewer heavy haulers. So, Lindsay, those are kind of the four broad direct spend supplier types. What about the different supplier types, right? And that just keeps on getting more complicated. I’m trying to say, ‘Who am I?’ Right? So here’s my four categories. Now five supplier types. Well, there’s the funny one: the utilities, the services, the ultra-state, the internet, the IT support, and the quality department might not be our friend because they may say, ‘Well, that’s a supplier, you know.’ They provide services. So, we have to be able to say, ‘Here’s how we support suppliers,’ and you know, as long as we break it out and address in our supplier management quality procedure, you know, we can say, ‘Here’s how we do it,’ and challenge them to rewrite it or challenge the auditor to say, ‘Okay, it’s too light,’ or ‘Yeah, that’s just fine.’ They’re subcontractors. We’ve got to watch them. They’re just because we don’t want to get tripped up, Susan, instead of, excuse me, the Sarah with the being pinged for working with a supplier that’s not on our approved list. The other manufacturers, if we’re outsourcing our circuit board assembly. Distributors, very interesting category. You know, if I buy from the printed circuit board world that we’re talking about, you know, the Avnets, the Arrows, these companies have evolved over the last 20 years by acquiring competitors and ended up, you know, multi-billion dollar behemoths. But do I manage the multi-billion dollar Best in Class distributor, or do I have to get beyond? When do I have to get beyond that to manage the manufacturer behind them? The Intels, the Motorola’s, the National Semiconductors, the Atchisons, you know.
So, you know, got to be careful with Distributors, that, you know, we avoid taking an overly simplistic perspective. And then it’s situational, but importers, you know, in my world, typically I export weekly and I import once a month. The consequence, you know, if someone’s in a consumer goods products, maybe they’re importing daily, right? So, you know, in my world, I don’t manage importers too much, but I do give them special attention, of course, and dot the i’s and cross the t’s. The point is, I don’t necessarily invest in an add-on to my ERP to manage where the boat is on the ocean. You know, that’s less concern to me, it’s less of an issue, whereas if you’re in the International import business, obviously these new software packages to add onto your ERP and consolidate the information to try and help the buyer with saying, ‘Here’s your request date, here’s your commit date, here’s where the boat is and the projected delivery time.’ That’s all good stuff, which in my world may be less relevant. What we’re trying to do was that once I know who I am, then I can describe that and communicate that, that’s going to drive ERP selection, that’s going to drive necessary staffing levels, and that’s going to drive whether I need to be investigating an add-on application to my ERP. So, Lindsay, let’s, so you talked about four categories for direct spend suppliers, and then the five different supplier types, now let’s maybe talk, move that into kind of like a baseline, what should people start from, from a supplier relationship management perspective, thank you, Sarah. The, yeah, the mistake is to shortchange ourselves, and the mistake is, this is to go with the ISO quality rhetoric that we have supplier management, and that equals purchase price variance, plus some element of on-time delivery, plus quality, as measured with receiving inspection reject rates. And certainly, these are broad pointers, but we don’t really, it’s not an end run just to look at these three numbers. Certainly, we can pull PPV and we should pull the spend number from Finance each year or on a rolling 12 months, just so we know who our big dollar guys are, help make sure we’re not overlooking someone and make sure they’re all on our approved supplier list. We should get the PPV report more frequently to watch what’s going on. On-time delivery typically comes from the so-called supplier management module of ERP. I don’t like that title because it’s not inclusive enough, and then the quality data again comes from the receiving inspection module of our ERP. But these three, these three essentially allow us to give us wallpaper-level supplier management, a little stand we can point to, a KPI we can update it quarterly, we can show it to a nice auditor, but essentially we’re faking it till we make it. And then what we’ve done is if you, if you think about life as a crawl-walk-run or in the IT world, you know, we talk about connecting with the data, gathering the data, managing the data, and optimizing the data. Really, we’ve just done the first two, right?
We’ve connected, we’ve identified what we want to look at, we’ve figured out where to go and get it, and we’ve pulled it together, and we can pull it together in something as simple as a spreadsheet. Isn’t life wonderful? You know, big companies, big manufacturers wish that life was it was so simple. And the beauty of it is the, this simple model can drive improvement. You know, if we go and study it and drill into it, then we can start making basic decisions. You know, you know versus what, right? Well, versus letting suppliers off with a casual discussion or a social discussion. And that’s insidious because, you know, for someone like me who rambles, you know, to put me in front of a supplier or supplier salesperson who’s got, who’s socially gifted, the, the two of us can go off on a trip to Abilene or, you know, just completely digress away from what we’re meant to be focused on. So, Lindsay, I think that’s a good topic then I think to expand upon is how to communicate internally and externally daily with suppliers because I think there’s some really important things, written and verbal, that can be done to better manage suppliers, right? So, basically, to get there, we have to have some fundamentals in place. One, we have to design, how am I going to do this, and what’s my vision? My vision is that I speak to all my suppliers every day, and we talk about on-time delivery because if I live in a culture and part of who I am is I need all my parts on time, you know, it’s time, and that’s very, very important because if I don’t have them, the factory stops or slows down, and I can’t deliver the end item. And just a little segue that may be different in other companies, yeah, speaking to a team that’s putting together data centers for Google, they care less about individual elements or they care far less about cost savings, even if it’s millions of dollars, and far more about the end delivery items.
So, what, what’s, what does the, what does success look like? What’s the Envision look like? The idea of how am I going to, how am I going to make this real? So, I started by saying, clean up the data, clean up the data, clean up the supplier contact information, clean up the open PO file. As you’re saying that, Lindsay, guess who just joined? Susan, the fixer of dirty data. You could not have timed that any better. This is a wonderful living, hopefully she’s logging in as from Brody Ferry. It’s a real eye-opener when you try to do something as simple as ‘I want to send a message to my supplier each day whenever they have an open PO that’s gone beyond its expected receipt date.’ You know, how might I do that? God forbid you ever do that manually. Simple, simple extract from the ERP data tables to utilize, leverage the email alert system to say, ‘Show me my open PO table, which has to be accurate. Tie it to vendor, tie it to which is on the PO Header information, tie it to an accurate supplier contact email, tie it to a buyer, and send an email and say…’ And the email is very simple. It says, ‘Hey, thanks for your support. Part of our quality system values is on-time delivery. Supplier on-time delivery. Our current open PO file shows three PO lines that are past due. Please follow up with the buyer who’s noted and get this resolved.’ My God, Sarah, what an exploration that is in the shortcomings of hands-off management. As soon as you get beyond the technical data scrubbing to get that in place and, you know, push it along to support you, but all of a sudden, the stories that come out. You know, and you’ve got, you’re confronted with, well, Lindsay, Lindsay, Lindsay creates 50 POs a week, but three of them aren’t properly finished off, whereas Wendy, she creates 200 POs a week, but 20 of them aren’t finished off or confirmed. Well, which one’s which buyer is better, right? Well, the answer is neither. They just need different coaching, you know. Lindsay, you need to get more productive and efficient, perhaps, or if it’s oranges to oranges, Wendy, you need to pay more attention to getting these POs cleaned up. The supplier, the feedback from suppliers. ‘Hey, I sent you five emails that I told you I couldn’t meet this date.’ Okay, so great topic, great seed for a weekly Round Table called purchasing team meeting that’s saying, ‘Hey, how do we deal with this? How do we make sure that we’re closing out POs properly?’
The point is that very basic external and internal communication, because we’re copying the buyer on this with this little email, and then we’re looking at all the feedback. So, it shouldn’t be a big, and then, Lindsay, what is, so to me, is like very basic. This is just down and dirty. What is better, and then what does excellent look like? Well, you say that, you know that the risk is that small companies, so many small manufacturers, that the integration of their ERP isn’t quite there. It’s implemented but not integrated with the day-to-day process. And things fall through the cracks. Fundamental, it’s basic, it’s fundamental, but once you get it, stress level of the dire goes down because now I know there’s less chance of a gotcha, less chance of getting yelled at, less chance of getting criticized, less chance of being reprimanded for something that I perceived was out of my control. You know the, you get it out in the open. Better, of course, is where, rather than just take this Lindsay’s silly example of saying, ‘Hey, this PO is late,’ to be able to monitor in real-time all the open POs. So, you know, if I typically have maybe 400 open POs and maybe 20 that are late, you know, the rather than manage the 20, management monitor the entire 400, not because it’s a one-time thing, but because Sarah tells us 50 of POs get rescheduled. I’d be fascinated to see how that trends. That being able to monitor that change because as buyers, we’re really good at placing new orders, we’re somewhat good at expediting, we’re pretty crappy about pushing stuff out, and awful about canceling. So, you know, all of this drives. It all comes to roost in excess inventory, slow, slow, and slow inventory, slower, slow, slow, and obsolete inventory. That’s, you know, a month later someone says, ‘Why is this sitting on the shelf?’ or ‘Why are we not getting our parts and materials on time and messing up the production line?’
Yeah, of course, of course, the and, and becoming the, the world’s best firefighter, right? You know, the daily fire drills about the, what do you mean it didn’t show up? So, you know, being able to use an app like ServiceDays to be able to coordinate purchase order changes, ongoing purchase order changes, and buyers not having to monitor that every day or fret about that every day, taking away admin duties from a buyer to better enable and empower the buyer to work at a more—I’m trying not to say strategic level—but to work with, you know, to add more value to what they’re doing. Too many buyers spend too much time doing administrative duties, too administrative, tactical tasks. These, the versus, you know, doing what we hired them to do, to negotiate, to manage, to do commodity plans. You know, you just—you said it was basic and in my experience, you’re driving, man. If we communicate on the 20, we typically—I’ve seen on-time delivery move from say 93 to 98. But yeah, what we’re doing when we use an app like SourceDay to monitor all the changes, one, we’re more efficient. Two, inventory is going to go down. Three, we’re going to push out receipts that we don’t need. But very importantly, we’re sending a message and the message is that on-time delivery is important to me, and I’m watching it. And then the beautiful thing, of course, is escalation. That at the end of the day, you can circle back at a quarterly review or you have to be able to circle back to a supplier and say, okay, here’s my—I have 200 suppliers. I had last quarter, I had 5,000 receipts, 500 of which is…
The, my overall on-time delivery was X, my worst on-time delivery was, was why, and that’s you, and I’d really like you to—you know, tell me what the root cause is and what you’re going to do to improve it. So, as we close out our combo, Lindsay, I’ll have you end today with what does Next Level, what does, you know, Best in Class look like? If those of you who joined us a little bit late, drop us a note, tell us where you are joining us from. We’ve got people from all over the world, actually, today. We’ve got some people in India, we’ve got some people in Ecuador, we’ve got Susan, the classification guru, fixer of dirty data, joining us from Guilford. Lindsay and I want to know what topics are important to you, what do you want us to talk about in future shows? So, if you have an idea for us, do not be shy about sharing that in the comments. Yeah, Best in Class. Sarah rolling, rolling your rolling the pain points. No one’s, perhaps potentially, no one’s going to proactively insist that we add other KPIs to our supplier management, but if there’s one that’s causing us grief, then rolling it in and giving it organizational visibility, like supply supplier orders shipped complete, if that’s, if that’s something that’s causing us grief, then then plug it in. The Hewlett-Packard model that came out, what in the 80s and the 90s, you know, added in the idea of beyond just cost, PPV, quality, on-time, add in the idea of relationship, technology, flexibility, responsiveness, you know, these are key. You know, there’s an opportunity here that some of our suppliers are better than we are, so just like some customers can pull us up by our bootstraps, there’s the potential here for some suppliers to help us as well. So definitely want to be able to say, you know, we’ve identified where the technology or roadmaps are, and here’s, here’s the suppliers that we’re going to align with to be, you know, to be better set up for tomorrow or, you know, another scenario is those of us who are working on post-acquisition integration, where we’re dealing with phasing out legacy suppliers, perhaps of convenience, mom-and-pop suppliers of convenience, to towards these Best in Class. That’s always a great transition that I think we’ve talked about before, that, you know, where we came from, where we are, where we’re heading. That’s a great three-part infographic to be able to share with the rest of the organization. Alrighty, we’ve got a couple future show topic suggestions coming in, so thank you, Susan, for sharing a couple ideas. Lindsay and I will be back next Monday at 10 A.M Central. Have a wonderful day and productive week. Thank you.