A Logistics Perspective (Part 6): More Common Pitfalls in Pursuing Preferred Supplier Strategies
by Craig Thompson

This is the final article in the series about the importance of achieving preferred supplier status as a strategy for building stronger relationships with your customers. In the last issue, we presented some concerns, risks and pitfalls that often haunt programs designed and implemented to achieve (and retain) preferred supplier status. In this issue, we discuss two more: Capability and Realization.

Capability

Probably the most common pitfall encountered is that of finding out your enterprise can't reliably and efficiently perform in accordance to the commitment. Whether due to the desperation or naiveté behind the original commitment or the lack of know-how, enablement or motivation of the enterprise, the fact is that all the right people weren't involved at the beginning.

One consumer hard goods manufacturer I worked with had identified a preferred supplier strategy it hoped would be the catalyst they thought they needed to raise overall delivery performance. At another, the goal was to restore brand prestige by "getting on the wall/shelf" of a highly regarded retailer. Predictably, both programs failed, beset by erratic performance and negative net value received. Not only was preferred status not gained but the failure to deliver on the commitment resulted in setbacks in the supplier/customer relationships.

This isn't the place to learn "blocking and tackling". Those are prerequisites. The lesson here is to understand the characteristics of preferred suppliers, discussed in the 2nd part in this series (see previous newsletters). Possible supply chain partner roles can be settled at this time as well.

Once the enterprise has gained these attributes, however, it can renew its efforts to become a preferred supplier. At one of the firms identified above, subsequent to its regaining control of its operations and building performance credibility, a hugely successful 'instant-response' fill-in program was developed in conjunction with its largest retail customer and, once perfected, was rolled out across all channels.

Realization

This can be the most insidious trap of all. You have committed to a valuable customer, made the resource investments in people, capital and systems, and modified ongoing operations. But, after all this, is it paying off? Is your enterprise (along with your customer) enjoying the benefits originally targeted or are you just spending money and spinning your wheels? Have other benefits arisen that weren't specifically predicted? Have there been downsides that partially or wholly offset the gains? How do you know?

The original goal(s) should be quantified (or represented) by the use of performance measures (e.g., volume, margin). These metrics can then be computed and reported at intervals sufficient to determine actual achievement as well as how their value is trending. This is normal performance management.

There are potentially big gaps in this normal approach to performance management. One leading beverage manufacturer I advised was caught in this trap – all the meters on the dashboard were reading favorable but the car ground to a halt. What was wrong was that something was missing – everything else! In other words, they weren't also keeping an eye on those other metrics - those not specifically associated with the preferred supplier program yet that were fundamental to the normal business.

Was a Value Assurance Program in effect? Did the actions required by the preferred supplier commitment impair performance elsewhere ultimately increasing overall costs, reducing total net margin, etc? Did the Program Manager have overall visibility? Was a balanced scorecard being maintained? Were problems recognized and root causes identified?

In conclusion, we all know that customers can be wonderful things. Their care and feeding dominate our enterprise activities. Their 'favors' are our stuff of life. Yet, they can also be fickle gold-diggers - expensive to acquire, hold and lose. Being one of their preferred suppliers is one successful strategy in keeping the shared value-producing relationship alive and positive. In addition to product and pricing, it can be a prominent lever in managing and preserving the relationship and in increasing your long term competitiveness. I hope that this series of articles gave you an appreciation of this approach along with a better sense of how to become a preferred supplier and keeping the program on a value track. If you would like more information on this or other logistics topics, please contact us.

View previous articles in this series