Gaining support for the introduction of a Supplier Development Programme (SDP) is often hindered by the degree of sceptism which exists both within the buyer's organisation and within the supplier's organization. "Why should we bother?"

Supplier development is a two way street, and so it needs to be anchored across each company's organisational structure, NOT just the procurement function. But it can yield a range of benefits if it is done well.

Typical objections to the introduction of an SDP include the following:

• We haven't got the time
• We haven't got the skills
• We've got this far without doing all this; why should we start now?
• We pay the supplier already - they should manage their own improvement
• Who's going to pay for it?
• We can't measure the results

So there may well be substantial inertia to overcome before you can launch and implement an SDP. How can we influence people within our own organisation that this is worth doing?

One approach to addressing these objections is to be clear about the benefits of a successful supplier development programme.

Benefits

A successful SDP gives us more of the following:

• More notice or lead time of impending problems, and hence more time to intervene "before it is too late"
• More feedback to service providers and suppliers to alert them to opportunities to improve their own performance
• More likelihood that we identify delinquent providers and suppliers and have sufficient evidence to minimise our exposure to them
• More dialogue with suppliers to allow them to offer us feedback on how we can change our methods to mutual benefit.

A successful SDP will give us less of the following:

• Less reactive "fire fighting" when trends in performance have been ignored and suddenly become a crisis
• Less arguments with suppliers about disputed facts or alternative views about the same issue
• Less exposure to risk in the event that poor occupational safety, health and environment or other contractor management practices are delinquent.

Clearly the "more of this" and "less of that" approach assumes that poor supplier performance is currently on the radar screen as a visible (if not a quantified) problem. This leads us to another approach we can use; the cost of quality.

The Cost of Quality

The cost of quality can be separated into three categories:

1. The Cost of Failure. An example of a cost of failure is the cost associated with an incorrect delivery. The receiving organisation may have to quarantine the incorrectly supplied goods
2. The Cost of Appraisal. An example is the cost of inspecting goods or checking documentation to confirm that the goods supplied conform to the standard that was requested. The checking process is a cost of appraisal.
3. The Cost of Prevention. An example would be the training of production staff in statistical process control to ensure that output produced is within acceptable tolerances.

Examples
Typically the costs of failure are the single largest area of cost. Examples include:

• Stock held as a contingency against late, part or non deliveries
• The consequences of an interruption to operations caused by absence of acceptable product
• Progressing costs such as phone calls, site reviews and chasing activity
• Panic responses such as using overnight couriers or deploying extra staff
• Troubleshooting meetings to resolve problems or to apportion responsibility
• Loss of goodwill across buyer/seller interface

There are three components to the total cost of quality. The single largest item is the failure-related costs. Next are the inspection, appraisal and measurement costs and finally the costs of prevention.

To change that situation we first need to find out what is going wrong and why is it failing? This implies research and measurement. Are the late deliveries only involving certain products? Do they occur on certain days of the week? Are they connected to the time of order generation or to the types and quantities of product ordered?

As the amount of effort expended upon researching the root cause[s] is increased this will gather data which will allow us to identify the drivers of success. The use of that data is to identify the root causes of the problems identified, and then begin preventative measures to eliminate the root causes.

The translation of the research data into appropriate preventative measures might include adapting ordering processes so that the supplier's lead time is built into the ordering cycle time or re-training picking staff to make sure that picking errors are minimised.

If these steps were followed what would be the impact?

The impact is that the costs of failure fall as the preventative measures pay off. The failure costs are not completely eliminated, in fact the most difficult may still remain. However, another wave of improvement may reduce the failure costs again.

Counting the Costs
Now intuitively, most internal stakeholders and most suppliers can relate to this without empirical evidence. However, the language that talks most loudly is often numbers not words, so in order to persuade the undecided we may try to place a numerical value on the failure related costs.

Then we can estimate that, say, a ten per cent reduction would yield cash releasing benefits of $x and non cash releasing benefits of $y. A pilot scheme might identify what effort is needed to achieve some return, and clarify what is the actual return achieved in practice.

Good Practice Tips
In choosing a pilot company, here are some good practice tips:

• Don't choose your worst supplier as the "first cab off the rank". This will take longer and be more difficult. Cut your teeth on a more co-operative supplier even if the scale of incremental improvement is less.

• Don't underestimate the time needed to mobilise the scheme. A "quick win" may be achieved after 90 days, but not usually after the first meeting!

• Don't interact with their sales team alone. They won't have the traction to make fundamental changes in operations and other parts of the business that may be needed. Try and get several functions involved, and if you can, get some executive interest in both companies so that it is on the radar screen at a senior level.

• A key cause of failure of these initiatives is that the supplying company expects the buying company to change in a way which the team sponsoring the project is not influential enough to deliver. The consequence is that the changes requested by the buying company are not delivered by the supplying company, as all the change would be one way. So, seek executive support within your own company too.

• Agree some realistic measures, and be rigorous in distinguishing "hard dollar" benefits and "soft dollar" benefits. Ultimately we want a return on the investment, so we need to capture all benefits realised, and "greater understanding" and "increased trust" may be nice, but you can't deposit them at the bank!

Paul Rogers is a Senior Consultant with PMMS Asia Pacific based in Melbourne.