Are Big Suppliers A Big Supply Risk?
PurchTips edition #139
By Charles Dominick, SPSM, SPSM2, SPSM3
Is Supply Risk Related To Supplier Size?
This month, I've posted a series of supplier case studies on my blog at http://tinyurl.com/38besp. From them, I've developed guidelines for considering supplier size in sourcing and supplier management decisions. This article shares guidelines for qualifying big suppliers.
Big suppliers have advantages as well as unique supply risks. Resolving problems with a big supplier can be tough: finding someone with control over an issue isn't easy and having that person's first priority be promptly addressing the issue of one small customer like you can be even harder. Sadly, you often discover this after you're already committed to the supplier.
But you can predict the likelihood of such problems. For a strategic buy or major project, take these actions before taking the risk of committing to a big supplier:
Require A Single Point of Contact (SPoC). When you request a proposal, always require suppliers to designate a SPoC who will be responsible for addressing situations requiring interaction beyond typical day-to-day business.
Interview The SPoC. A SPoC's aptitude can reduce or fuel supply risk. Before committing to a supplier, assess the SPoC's communication skills, knowledge of various aspects of the supplier's business, and relationships with key contacts in each area. If the SPoC seems weak in such areas, there is heightened supply risk.
Require An Escalation Plan. As good as the SPoC may be, some purchases are just too risky and critical to wait for the SPoC to respond. So require the supplier to provide in its proposal an escalation plan with the names and contact details of people to call if you don't get a response within a certain time frame. This plan should start with the SPoC and end with the president, with an appropriate number of levels in between.
Test The Escalation Plan. Before committing to a supplier, call the people in its escalation plan. Do they answer their phones? If not, leave messages requesting responses by a certain time. If they don't answer phones nor return calls, there is heightened supply risk.
While every purchasing project will have some risk, these actions can help you assess the risk of selecting a big supplier and guide a proper selection.
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