Operations Payoff

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Creating a Preferred Supplier List

Many companies have too many suppliers. Bridget McCrea interviewed me for a recent article for Digi-Key Corporation on how to develop a preferred supplier list. By following six steps, companies can have great supplier partners while maintaining a comparatively small list of those suppliers.

The six steps for developing a good list of suppliers are:

  1. Start the process in the design phase – get your engineers involved so they can help you select suppliers with the appropriate technical capabilities.
  2. Look beyond the bottom-line costs – focus on Total Cost of Ownership (TCO) including logistics, obsolescence and cost of quality.
  3. Award extra points to suppliers who are willing to partner – use your suppliers as experts to help improve quality and reduce costs.
  4. Open up to your suppliers – keep them in the loop as to your needs, and have conversations with them about what the market is doing.
  5. Look for innovative partners – use them to develop auto-replenishment systems such as Vendor Managed Inventory and Kanban.
  6. Review the list regularly but change slowly – hold them accountable, but don’t change unless you have to.

Using these six steps, companies can create a short list of key supplier partners to provide innovative solutions at a lower cost with reliable supply.

© 2013 – Rick Pay – All Rights Reserved

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