Keep your friends close, the art of the supplier site visit

Adding to my discussion last week about the pitfalls of “unchallenged” Long Term Relationships, I believe that it is an absolute necessity for all Procurement people whether they are procuring goods or services to visit their supply partners at least once a year.

Why is this necessary you ask? Well for two very simple reasons. 1) you are honoring your supplier with your presence and let them know that you value them and their contribution to yourself and your organization. The supplier can use this opportunity to talk to you about their year, their plans, their new technology, the changes in their industry etc. Additionally, if you are close enough to your supply partner representative, you would have come to know the frustrations and challenges that they face with their internal people which could in turn be frustrating and add cost to you and your business. By you going to your supplier’s site, you can use this opportunity to speak with their management on these “challenges” and if they hear it from their customer rather than from their own guy, there is a bigger chance for change to happen because now the customer is asking for this. 2) you need to be structured in your site visit. No, I did not say Site Audit – this is a discussion for another time, I said site visit. The site visit is your look-see around your supplier, how they manage stock, are there new production lines, how many machines are working or are in repair, since you were last here did they automate any activities, what does their customer services team look like, how is the security around some of your confidential products being managed, what goes into waste, have they achieved any ISO standards in the past year, etc. Hopefully you will also get some office visit time so you can pick the brains of the Top Management re future investments, market shares, where your company ranks in their customer base, etc

Many times buyers are tasked to reduce the cost of the items i.e. we buy it for 10p, you need to get it for 8p or less. Now, most of the commodities that we buy, the cost is already as close to the bone as it can get, for the most part. However, the biggest and unexplored territory where you could get further savings are in the operational savings, i.e. the cost of delivering that goods or service to your organization. To be clear, the supplier will be selling that same product to other people and most probably at a different price point than they sell it to you. Do not think that you are getting the lowest price, because perhaps the other customer takes 3 months’ worth or goods or accepts that it gets delivered wrapped in cling film rather than boxed in 20s as you are asking the supplier to do or the other customer may have better payment terms which means that the supplier can give them a better price, you want bells and whistles the other customer takes vanilla as standard, etc. This site visit is also for you uncover where there are operational changes that can be made that will deliver a savings to your company. Without being there in person and seeing the operations first hand, you will not be able to know where you could ask the supplier to make a change or adjustment to getting a better final price for the goods or service. I have used this over the last 10 years and each time I come away from a supplier, I know that I have cut out a further 15-20% of final price that would not have been available to me had I not seen the operations. Sometimes it meant that I had to go back to my people and say, hey, we need to be a better customer to our supplier to benefit, but I have never shied away from this conversation, actually, if you do not have this “We need to be a better customer” talk with your internal people, then you are missing an important play.

Procurement professionals owe it to their functions, their organizations and themselves to periodically visit their suppliers. Whether these are critical service or non-critical service suppliers. If Procurement does not do this, they are leaving a lot of money on the table and they will not be very effective in their next round of negotiations because they will only be able to ask for a cost down without having the additional ammunition of a site visit to use to gain these additional savings. Also, I would strongly encourage the Procurement person to take their key internal stakeholder with them to this site visit. Make this event collaborative and a team and value added effort by devising a Supplier Site Visit Observation Sheet with you that you give to the stakeholder for them to fill out as they will be sensitized to observe the supplier through this lense and will be able to understand the value that Procurement brings to them by this process. Post the Site visit, the completed forms can be filed into the supplier’s information folder and can help them in next round negotiations or the next buyer and stakeholder understand the supplier a little better rather than just knowing which goods and services you purchase and at what price. Walking the shop floor has proven to be one of the most effective management tools, but using it to help your Procurement negotiation effort, is invaluable to you and your organization. Make the time to do this.

Emeryst offer this Site Visit as a Service to our customers, please feel free to contact us to discuss your requirement.