SIG University Certified Sourcing Professional (CSP) program graduate Sergio Mielnik shares an in-depth understanding of how supplier relationships should be managed and how improving supplier relations at different levels will create successful sourcing engagements.
Throughout the certification, a constant emphasis on supplier relationships and the guidance provided to use these relationships as drivers to successful sourcing engagements. Suppliers are critical drivers of your pricing, delivery, strategy, and forecast. I have engaged suppliers from sole-source, directed, competitive, non-competitive, and management sources. Each situation has been unique, but I have treated all suppliers with the same level of communication and collaboration.
As supply chains get tighter and more competitive, it is essential to keep those communication channels to create a personal approach rather than a solely monetary exchange approach. This does not mean you hand out the keys to your supplier, but if this could happen, you can trust the relationship developed to obtain solutions and drive success.
Managing suppliers at different levels, whether critical or non-critical, is another topic that I found interesting. The relationship between a “ma and pa” shop versus a top-tier conglomerate is not the same. Still, you must strive to find that personal connection with different types of companies, provide fairness in your approach, and understand each supplier’s competitive advantages. I have often found myself waiting in line with top suppliers, which affects our delivery and production schedules.
To this extent, it has been a challenge to diversify a portfolio of suppliers where you have options to deliver similar products. There is a challenge from management wanting to reduce this portfolio and negotiate agreements and products in one single blanket. The phrase “don’t put all your eggs in one basket” comes to mind. Historically I have found myself rescuing suppliers from being cut off from our supply chain, not because of poor delivery, quality, or pricing, but because of trying to centralize products to a single source.
A good example was manufacturers of hardware that specialized in parts for military vehicles built by small companies for more than twenty years. During the Iraq war, the demand for such features increased, and the manufacturers saw themselves making a year’s worth of parts in days. This impacted them, but it was something that they could manage. What was avoided was centralizing and leaving these manufacturers off the supply chain.
Many of these parts were built with tools specially designed in conjunction with the Department of Defense many years ago. Sometimes the drawings were prints from engineers’ napkins, and the only ones that knew how to use the machines and had the expertise of building such parts were these small companies. That was a challenge for management to continue our relationship with these manufacturers, and it paid off years later under the war surge.
Another example of dealing with a sole source is that we did not have a contract but pricing agreements and a “handshake” between companies. We were dependent on their product to operate daily, and the opportunities to save money or negotiate were minimal. I suggested developing electronic transactions and ACH for payments and deliveries. I proposed to the supplier that they would give us a discount if we drove ourselves towards these solutions.
With the agreement of both companies, we were able to eliminate all the paperwork created daily and was replaced with electronic documents and files that were transferred between companies which facilitated deliveries and accountability and even delivered a .02% discount for my company. In a relationship of this sort, such a minimal percentage was considerable. It was a great example of how you can always find opportunities with your suppliers when you build relationships that provide winning solutions to both ends.
The Certified Sourcing Professional (CSP) Program is a 10-week course that focuses on the hard and soft skills of sourcing, including strategic sourcing and outsourcing methodologies, as well as best practices in negotiations.
Sergio Mielnik is a Lead Business Risk and Controls Advisor with over fifteen years of professional experience in contracting, operations, supply chain, and fiscal services. His passions are simplicity and process improvements. He has worked in different industries from financial services, military contracting, and mass production and operations. He holds a BA in International Business from San Diego State University and an MBA from The Florida State University.