The tariffs on China have been a real jolt to U.S.-based OEMs and given many pause about their current strategies and practices. For instance, many who had placed a significant portion of their "spend" exclusively in China now realize that back-up plans should be part of supply management planning and—regardless of how the tariff situation ends up—are looking to establish such Plan Bs.
Global MFG - Jul 8, 2019
The Lost Art of Building Supplier RelationshipsPaul Ericksen | IndustryWeek
Over the years, I’ve contributed about 90 articles to IndustryWeek. One of them “It Takes Two to Tango,” from 2015, dealt with the fact that in supply chain negotiations, there is middle ground if both sides are willing to compromise.
The headline, suggested by my then-editor, was a bit of a stretch for me; I didn’t understand how it related to the content of the article. But now I know what he was getting at. Tango dancers must coordinate and collaborate to the nth degree to successfully execute the dance.
I think you can see where this is going relative to OEM-supplier relationships. Times have changed since the tango was popular. Today’s dancing seems less about coordinating with a partner—where the sum is greater than the whole—and instead positioning partners for individual outcomes. As a result, the beauty of the dance is compromised, at least in my opinion.
When I started out as a technical buyer in the late 1980s, the dance between customer and supplier resulted in each party contributing to the value of the purchased product, such that it became better in terms of safety, function, reliability and piece-price.
Over the years, as I moved “up the ladder,” I saw every factor in the negotiation dance except one—piece price—fade into the background. In my opinion, this was the result of the rush to find overseas sources, which precluded building relationships based on collaboration. What I saw, instead, was a move to arm’s-length OEM request-for-quotes from suppliers, and sourcing decisions made strictly on piece-price. In many instances, sources were selected without OEM buyers having even having visited the proposed source to understand their overall operation or communicate with them on possible changes to the specifications that could improve part safety, function or reliability—or reduce cost.
Once this started happening with overseas suppliers, I saw OEM’s starting to work with their domestic suppliers in the same manner, with the result today that you’ll have buyers basing sourcing decisions strictly based on quote data—again, primarily piece-price—without having any real understanding of the total value-add available from their the array of sourcing options. Because of this, they are not getting all of the value-add suppliers have to offer.
OEM customers and their suppliers must coordinate to the nth degree to get the best overall outcome. I’ve had reader feedback, however, that while this is an exemplary goal, don’t hold your breath.
I’m not so sure. Why? Because I’ve been working on in supply chain management for over 30 years and I’ve never seen “the planets” so aligned for facilitating a change in procurement. The tariffs on China have been a real jolt to U.S.-based OEMs and given many pause about their current strategies and practices. For instance, many who had placed a significant portion of their “spend” exclusively in China now realize that back-up plans should be part of supply management planning and—regardless of how the tariff situation ends up—are looking to establish such Plan Bs.
There are also tools—such as SAP, among others—that now allow assigning more of the real overall cost of purchased material to specific sources. Because of this, OEMs are starting to understand sourcing costs not only based on piece-price but also on internal overheads.