Identifying Supplier Alliance Candidates

PurchTips - Edition # 56 August 24, 2004

By Charles Dominick, C.P.M., SPSM

How Do You Know Which Suppliers To Target?

A supplier alliance is a special, formalized relationship with a supplier - a relationship reserved for an extremely limited number of suppliers. It's characterized by collaboration that results in mutual successes not achievable otherwise.

You may pursue a supplier alliance to realize one or more of the following benefits:

To assure continuity of supply in a tight market
To achieve significant reduction in the cost of doing business, of which price is only one component
To attain a flexible and responsive source of supply when demand changes unexpectedly or dramatically
To access expertise that will contribute to innovation
To improve your organization's quality or operations

Deciding on alliance partners involves two variables: (1) difficulty of obtaining supply and (2) importance to your organization's mission. Here's one way to identify candidates for supplier alliances...Calculate Supply and Importance Scores for each major supplier as follows:

Supply Score	Importance Score
1 Point if there are many sources for the product/service, short lead times, and predictable availability	1 Point if your organization could fulfill its obligations to its customers without the product/service
2 Points if there are few sources, occasional long lead times, and sometimes unpredictable availability	2 Points if the product/service supports the production of a product or provision of a service, but is not directly incorporated into the final product/service
3 Points if there are one or two sources, frequent long lead times, and always unpredictable availability	3 Points if the product or service is directly incorporated into the final product/service

Multiply these two scores together for a Total Score. Suppliers who have a Total Score of 9 are excellent candidates for supplier alliances. These suppliers warrant more attention, closer collaboration, and vision sharing for future success.

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