In the fast-paced business world, small companies always look for ways to stay ahead. One effective strategy that is sometimes overlooked is vendor development.
What is Vendor Development?
Vendor or Supplier Development is the area which involves building solid relationships with select suppliers to improve supply chain efficiency and overall business performance.
Supplier development involves working closely with suppliers with better potential to cater to the buyers’ needs, aiming to achieve significant performance improvements. A comprehensive plan can be developed through a collaborative approach between the buyer and supplier, outlining specific improvement points with realistic deadlines for implementing changes. This development program empowers suppliers to overcome challenges and unlock their full potential.
Consider a scenario where a supplier consistently delivers top-quality products but struggles with timeliness, causing disruptions to your supply chain. Rather than severing ties, you can embark on a mutually beneficial collaboration to find innovative solutions and ensure timely product arrivals. This approach resolves the issue and nurtures a mutually beneficial partnership built on trust and continual improvement.
The Ill Effects of Solely Relying on L1 Vendors
Even today, many organisations treat suppliers as adversaries to beat at the negotiating table. Lowest Cost (L1) vendors might seem like the most economical choice on paper, but relying solely on them can have detrimental effects. These vendors often prioritise cost over quality, leading to potential quality issues, frequent supply chain disruptions, and compromised customer satisfaction.
This is an indispensable strategy for companies, particularly small businesses. By following the structured steps and committing to long-term relationships, small businesses can harness the full potential of their supplier partnerships.
A supplier will show his best improvement or innovation first to the buyer who treats him best.
Dr. W. Edwards Deming, the renowned quality expert, emphasised the importance of forming partnerships with suppliers. His principles, encapsulated by the 14 Points to Management, resonate deeply with vendor development.
Dr. Deming advocated for a fundamental transformation in how businesses approach their relationships with suppliers.
End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.– 4th Point of Deming’s 14 Points to Mangement
This approach allows small businesses to optimise their supplier relationships and achieve business excellence, and this can be a game-changer for small businesses.
1. Access to Expertise
Small businesses often lack the extensive resources and specialised skills needed to address every aspect of their operations. Vendor development allows them to leverage the expertise of their suppliers, enabling them to innovate and grow.
2. Cost Savings
Through strategic vendor development, companies can negotiate better pricing, optimise supply chain management, and minimise waste, resulting in substantial cost savings.
3. Quality Assurance
Vendor development empowers small businesses to maintain consistent product or service quality by collaborating closely with suppliers, setting quality standards, and monitoring compliance.
4. Risk Mitigation
Small businesses are highly vulnerable to supply chain disruptions. Vendor development enables the diversification of suppliers and the development of contingency plans to reduce operational risks.
5. Green-Channel Partners
Having a strong, reliable, trustworthy supplier base will be a boon to small businesses. Imagine what would happen if 50% of your suppliers always deliver materials on time, without a single defect, with 100% compliance.
As buyers, we do not need to spend our time and resources on inspection and material handling in such a scenario. It will also reduce a lot of stress and strain for your employees.
For more details on Green-Channel Partners, please read the article.
The Steps Involved in Vendor Development
Successful vendor development doesn’t occur overnight. It requires a structured approach:
1. Vendor Selection: Choose suppliers that align with your business goals, values, and quality standards.
2. Relationship Building: Establish open, transparent, and respectful communication with your vendors. This forms the bedrock of a successful partnership.
3. Collaborative Development: Work closely with your vendors to set quality standards, performance metrics, and continuous improvement goals.
4. Continuous Vendor Assessment: Continuously assess your vendors’ performance against agreed metrics and provide constructive feedback to foster growth and improvement. Please refer to the sequel ‘Continuous Vendor Assessment‘ for more information.
5. Long-Term Commitment: Vendor development is a marathon, not a sprint. It necessitates a sustained commitment to building enduring partnerships.
Open up the Potentials
In conclusion, vendor development is an essential strategy for companies, particularly small businesses, seeking growth, cost efficiency, and quality assurance. In an increasingly competitive business world, the power of collaboration cannot be underestimated, and vendor development is the key that can open doors to success.