Legal Industrial Espionage: Getting the Most Out of Supplier Site Visits
David R. Wilcox, A.P.P., C.P.M.
David R. Wilcox, A.P.P., C.P.M., Contract Manager, California State Automobile Association, 455 Hickey Boulevard, Daly City, CA 94015-2699, (415) 301-1404.
82nd Annual International Conference Proceedings - 1997
Abstract: As long-term contracts become more prevalent, the supplier site visit assumes more importance as part of the supplier qualification and subsequent supplier management process. This paper shows how to get the most out of the time spent at the supplier's site. It also provides tips on how to obtain information valuable in negotiations.
The Issues: With the new directions modern purchasing is taking, sometimes essential fundamentals get lost in the swirl of the new rhetoric. Supply chain management starts with supplier management and supplier management starts before supplier selection. Supplier qualification is the first link in supply chain management. Thorough evaluation of the supplier is the key to success, and thorough evaluation requires on-site examination of the supplier's operations.
The Opportunity: Ideally, the supplier site visit should be performed by a cross-functional team representing purchasing, accounting and the end user (often an engineer). The team approach builds internal consensus that can facilitate supply chain management down the line. If a contract with the supplier is anticipated (and it should be), then having a corporate attorney on the team enhances the supplier management process. Planning sessions several weeks before the planned visit to establish objectives and apportion the team member assignments will result in time and cost effective site tours.
Objectives: By observing the supplier's operations the team will be able to determine how efficient and cost effective are: receiving, manufacturing, quality control, staging, distribution and shipping, customer service, accounting and let's not forget purchasing. Site rating forms should be developed for each of these areas and then consolidated on an overall rating sheet. All rating factors should be as quantifiable as possible.
By talking to the supplier's staff members on their jobs, the following types of information can be obtained: how well capitalized is the supplier, how well organized is it, how suitable are the manufacturing and distribution capabilities for your needs, how motivated are the employees, what's the emphasis on quality, what's the emphasis on research and development, how effective are their cost controls, how efficient are their logistics, how are they set up for rapid response to rushes, what apparatus and procedures are in place for handling shipping errors and invoicing problems.
In addition, absolutely invaluable information for cost analysis can be gleaned from the on-site visit. Some examples are: how many units is the supplier producing per hour/day, what's the cost of their materials, what's their overhead, what are the labor rates in the region, are they unionized. You can get answers to such questions if they are asked in an informal and casual manner when talking to different personnel about their areas of expertise. Whereas many suppliers are disinclined to answer such questions when presented with formal list of the same questions.
Why is cost analysis so important? This is the big bonus to carefully planned site-visits. In addition to helping you select superior suppliers, the cost information allows you to estimate product cost, which gives you a leg up when you negotiate the price.
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