When striving for operational excellence, building strong partnerships with suppliers becomes paramount for success. The lead times and minimum order quantities set by your suppliers significantly influence your raw material inventory levels and ultimately impact your overall performance in terms of delivery and quality.

But how can you encourage suppliers to shorten lead times, decrease minimum order quantities, and enhance delivery frequency without substantial cost hikes?

  1. Consolidate Volume and Suppliers: Seek opportunities to consolidate volume with suppliers who are willing to collaborate closely and are conveniently located. Concentrating volume with fewer suppliers fosters stronger partnerships.
  2. Share Savings: Consider sharing cost savings resulting from improved efficiencies. Prioritize reducing lead times and increasing delivery frequency. Even a small reduction in part price can substantially boost margins for suppliers.
  3. Calculate Cost Savings: Understand the various components of cost savings, including carrying costs and transactional costs. Carrying costs encompass factors like the cost of capital, property insurance, handling costs, storage costs, utility costs, obsolescence risk, and in some cases, property tax. Transactional costs involve system transactions, shipping costs, packaging/unpackaging costs, and inspection costs.
  4. Minimize Transactional Costs: Take steps to minimize transactional costs wherever possible. Examples include streamlining procurement processes, such as one-click reordering and receiving, transitioning to annual contracts, reducing packaging, eliminating unnecessary counts, and implementing batch receipts for single payments.
  5. Close Proximity: Opt for suppliers located closer to your operations to mitigate shipping costs, especially as delivery frequency increases.

As suppliers align with your goals and make operational improvements to accommodate more frequent deliveries, they’ll benefit from establishing a smoother workflow.

Remember, with a consistent rhythm comes continual improvement. If you’re interested in further discussions on how to foster supplier partnerships to achieve operational excellence, feel free to reach out to me.