No matter what company it is, resources for supplier management are always limited. Which suppliers should we focus on managing?

Not actively eliminating suppliers. Active elimination is a “bottomless strategy”, a bottomless pit of resources, with the greatest risk and the lowest return on investment. Once you fall into the quagmire of actively eliminating suppliers, you may not have enough resources to support new product development. As a result, new products often fall into the hands of suppliers that are to be eliminated in the future, falling into a vicious cycle of “suffering twice and being punished twice”.

It is not about passive elimination of suppliers. There are usually a large number of such suppliers, some of which are “bottleneck” and cannot be cut or chopped; some are in a state of stagnation and require a lot of resources. So we just keep pushing forward and let time take care of them: maintain the status , as long as we ensure that no new business flows in, these suppliers will naturally be eliminated as old products are delisted.

Some people say that it is the preferred supplier . The main business of the enterprise is done by the preferred suppliers. If the management is not good, once they quit, the impact will be great. But this kind of management does not mean that at 9:30 every morning, you call their boss to ask if the 150 employees on the production line have signed in. The preferred supplier is like those hardworking employees, who work hard and are reliable. What you need to do is to tell him the goal and follow up regularly. Management is an exception.

For example, when I was managing package suppliers, I would check the on-time delivery rate of the previous week, the previous four weeks, and the previous thirteen weeks every week. Once it was lower than the target of 95%, I would call them to find out why it was low and what measures the supplier was taking to improve. The technical content of package is limited, and it is mainly made by preferred suppliers. They know that there are competitors, and if they don’t do a good job, the job will go to others – market competition manages these preferred suppliers. As a manager, you have to pay attention to what the preferred suppliers do, but don’t get involved too much in their daily operations and beware of over-management.

Why do I say that? Because preferred suppliers are “manageable”, some people often give orders and give blind instructions, which results in a lot of extra costs for suppliers. Remember, although it seems that everyone knows how to do the things of preferred suppliers, as buyer , especially inexperienced purchasers (precisely because of their inexperience, companies often give them preferred suppliers that are easier to manage as training). We must respect the professionalism of preferred suppliers, trust but confirm , keep a close eye on the results, try to understand the process, and urge suppliers to control the process through the results, which is often a wiser choice.

As a result, the company is hit by two sticks: one stick comes from a strategic supplier who is “capable but also has a bad temper”, which is worthy of sympathy; the other stick comes from a preferred supplier who is “calm but also incompetent”, which is self-inflicted and cannot survive. For example, the quality staff of a large mobile phone manufacturer complained that they were out of stock of paper boxes for data cables, and the purchasing department was forcing the quality staff to develop a second source of supply. You can see how well the purchasing department is doing.

This has gone a bit off topic, let’s get back to the topic.

Unqualified suppliers need to invest in resource management because they either have not proven themselves and are risky, or need to prove themselves again and are risky. The former are new suppliers, just like newly hired employees, who need to spend more time on training and coaching to get off to a good start and get on the right track as soon as possible; the latter are old suppliers, who are in a “probation” state due to temporary performance issues and can be promoted or demoted with a push. These old suppliers are familiar with the company’s systems, processes and policies and have a lot of value to the company. If they can be saved, it is often better than looking for new suppliers.

However, for mature enterprises, when they reach a certain scale and their business is relatively stable, the number of unqualified suppliers should be limited (otherwise, it indicates that there is a big problem with overall supplier management). Therefore, although the management intensity is high, the overall resources spent on unqualified suppliers are relatively limited. So where do most of the resources go? Strategic suppliers.

Strategic suppliers either have key technologies and strategic resources, or are large in scale and have strong bargaining power. They are destined to have a bumpy cooperation and need to invest a lot of resources to maintain business relationships. Such suppliers are often at the forefront of technology, with difficult technologies and processes that have not yet been verified. They are destined to have many quality and delivery issues, and the purchaser needs to invest resources to deal with them.

Strategic suppliers are like adolescent children. If you talk to them, they won’t listen. If you don’t talk to them, they will be even worse. A common misunderstanding is that many companies leave strategic suppliers alone because they are “unruly” and do not manage them in a substantive way. Or they treat them indiscriminately and treat them the same as general suppliers. Improper management will bring great losses.