There is a common procurement evolution among multi-plant manufacturers.
Initially, all plants perform their own procurement. At some point, some parts of procurement become centralized while other parts remain at the plant level.
The centralized procurement activities usually involve selecting, contracting with, and managing strategic suppliers. The decentralized procurement activities usually involve placing orders, expediting shipments, and communicating with supplier operational staff on day-to-day matters.
This common evolution has a common problem: the suppliers that centralized procurement selects fail to meet the expectations of one or more plants.
Suddenly, the plant buyers feel “stuck” with suppliers with whom they seemingly have lost all of their influence. Now, the plant buyers have to direct their complaints to an intermediary – the centralized procurement team. And those complaints often fall on deaf ears. Centralized procurement teams are enchanted with the thrill of chasing savings through sourcing, don’t see their role as one of providing service to the plants, and are ill-equipped to respond to problems. As such, the plant buyers complaints are ignored. The supplier problems continue unabated. And the business suffers.
So, what can a plant buyer do in this situation?
Well, complaining that his one or two emails to a centralized sourcing specialist have been ignored is not the right answer.
Instead, here’s what I recommend.
- The supplier’s on-time delivery has slipped from 95% in the first three quarters of 2017 to 60% in the last quarter of 2017
- The late supplier deliveries have caused the plant to miss delivery deadlines on 300 of 1,000 orders in the last three months
- Of those 300 late deliveries, 50 have resulted in customers canceling their orders, 20 have triggered customers to charge liquidated damages per the contracts with them, and 10 have resulted in a customer terminating a contract
- The canceled orders resulted in a $300,000 revenue loss and $60,000 gross profit loss
- The liquidated damages totaled $32,000
- The customer that was lost has spent $240,000 annually with the plant