It’s not uncommon for importers to find themselves up against the wall with tight timelines for production orders in order to meet their customer timelines or projected product launch dates. If you’re not careful you could find yourself pacing the floor and begging the powers that be that you don’t run into any production hang-ups, surprise customs inspection delays, or logistical/shipping setbacks.
The truth of the matter is that there is a lot you can do to forestall these kinds of scenarios, and while you may have to take a step back to look at your business, moving to a smoother business rhythm probably takes a lot less effort than you might think. A guiding principle behind almost all business decisions should be the dollar-per hour, or “DPH” approach. One of your primary business goals should be to foster a business machine that is able to generate as many dollars per hour as possible. This means looking into your business practices for things that waste time, money, and resources, and looking to understand your sourcing activities in terms of Total Sourcing Cost, not naively sourcing based on the easiest benchmarkable variable - FOB cost. This philosophy is what guides the following recommendations to avoid these stressful “time crunch” scenarios
1) House Cleaning
a. Step Back from your business for a day and ask yourself this question: do I and my team have (and understand) a replicable, scalable process for all of our business activities? Do we have a “groove” that we get into when doing our work, or do we find that every order is an exception to some rule that we either don’t know or don’t understand? (This presupposes that you actually have a viable business plan, proper market analysis and segmentation, and enough demand to keep you profitable.)
b. Process Evaluation: Meticulously look through your processes to cut out and redefine activities that waste time, money, and resources. (A great starting point would be to look at six-sigma analysis of your process flows. See www.en.wikipedia.org/wiki/Six_Sigma ) Keep an eye on things like redundant activities, process flows with high variability, bottlenecks and constraints, “black box” activities, and unassigned tasks.
c. Evaluate “who’s on the bus”. Do you have a winning team? This doesn’t mean you must have a Harvard/MIT staff, but it does mean that they need to have the basics to help your firm succeed. In reviewing my staff, I use the simple “SAT” Analysis: Do they have the right Skills and knowledge for their job? Do they have the Aptitude and smarts to perform their role? Are they Teachable and have the right attitude? I usually find that most of the personnel problems I have are because of systems or process flow problems, and only occasionally because I have the wrong person in a position. After analyzing my processes in the past, I’ve moved employees from one department to another with the result that their work quality went from abhorrent to stellar. This ended up bolstering a core competitive advantage of our firm as well.
2) Customer Analysis and Evaluation
You may be surprised at what this step can do to reduce your stress and increase your business profitability. If your customers are disorganized and difficult to serve, this will directly impact your own processes as well as your interaction with your suppliers. Improvement in this area should directly or indirectly translate into improvement in supplier relationships.
a. Customer Profitability Analysis: Evaluate the profitability of your customers using a DPH (Dollar per Hour) type of analysis. Don’t just look at the gross margin from servicing these customers; think of the total cost of servicing them. You may find that you’re operating on a razor-thin profit margin to service customers who you thought were your bread-and-butter. Which customers eat the most time, create the most stress, and generate the least profits? Which customers have their act together, are profitable to serve, and are a pleasure to work with? You’ll likely see the “Pareto Principle” at work here – 20% of your customers will generate 80% of your profitable business activity and conversely another 20% of your customers will generate 80% of your headaches and losses.
b. Make Customers Team Members: Begin seeing your customers as part of your team, and acknowledge that it is your responsibility to manage them well.
i. If you have customers that are costing you money and have no desire to improve, drop them. It’s always a joy to hand off your biggest headaches to the competition.
ii. Look to see if you have customers who are underperforming, but have what it takes to improve. If you serve these customers well and help them improve, you may find these becoming more profitable than your current “star” customers – and more loyal as well. After going through your own “House Cleaning” you will likely find some tips that will bring instant improvement for your customers’ businesses as well. Nick Woodall, a Dallas, TX based financial consultant, is well known for saying, “If you help other people get to where they want to go, it will help you get to where you want to go.”
iii. Reward your “star” customers, anticipate their needs, and bolster your value-added to them. Treat these guys the way you would your top sales professionals. There are numerous books and web materials on customer incentives and appreciation. Your business can greatly benefit from being educated in this area of knowledge.
c. Optimize Customer Touch Points: Pay special attention to processes and Touch Points (points of interaction) with your customers. Seek to optimize these and grow an increasingly positive experience with your firm. If you weed out the chaff from the wheat in your customer base, you will find this much easier to do. Difficult or unreasonable customers that you should have let go already will make any competent customer service process impossible. (Keep in mind that if you find all of your customers difficult or unreasonable, it’s probably not your customers that are the problem.)
3) Engaging Your Suppliers For Success
After years of working with suppliers and customers, I find it amazing how many people maintain a half-hearted, ambivalent relationship with their suppliers. A good supplier is worth its weight in gold and is an integral part of your success in the value chain. Occasionally I see companies hammering their suppliers for services or product pricing that would literally drive their supplier out of business. If you find yourself burning through supplier after supplier, the following section is imperative for your sourcing success.
a. Understand Your Product: The first step to a successful relationship with your supplier is to truly understand your product. What is your product’s place in the marketplace? What are the materials and manufacturing processes that can be used for your product? I can’t tell you how frustrating it is for a supplier to get a picture of a product without any specifications and a one line question “how much?” Yet it happens every day. Suppliers need to know the CTQ (critical to quality) issues to provide you with the product you need at the appropriate price. If you’re shooting out a generic RFQ for a poorly defined product, you’re playing Russian roulette with your business.
b. Pick any Two: An old business mentor of mine told me an old adage that has proven true time and time again. All things being equal, you have three metrics that constitute the value a supplier can give you: good, fast, and cheap. 99.99% of the time, you have to choose between two of these. You want a good product and you want it fast? Don’t expect it to be cheap. You get the picture. Know in advance what your priorities are here, and it will serve you when you move to accurately evaluate your suppliers. If by some miracle, you find someone who can do all three, read the customer analysis section above, and make sure you’re one of their best customers!
c. Accurate Evaluation: Accurately evaluate suppliers in terms of value, not just FOB cost. You’ll need to shift your thinking from mere product costs, to the total cost of doing business.
i. Total Value: If a product costs USD3.25 from one supplier, and USD2.95 from another, but working with the latter would mean a lot more work, it’s your job to analyze the actual cost of that work. How much time does it take to negotiate, process, inspect, and procure the deal? How much is the total shipping cost for each of these products? (This can be tricky if they’re from different ports and using different 3PL companies.) I’ve seen some suppliers mildly competitive on FOB pricing, but significantly competitive on DDU pricing.
ii. Supplier Ability: Make sure you’re comparing apples to apples. If you’re looking at two or more suppliers for the same product and see a huge price differentiation, you’re probably overlooking something significant. While evaluating your suppliers, take some time to evaluate your target market requirements as well. If your own quality requirements surpass those of your market, you could end up paying too much for your product and end up being uncompetitive. Once you determine the CTQ issues for a product, look for the suppliers who have the current ability to handle your product. Some suppliers may have latent ability and are teachable. These are good to keep in touch with and help them grow AFTER you secure a solid supply base.
iii. Supplier Added Ability: Don’t just evaluate your supplier’s manufacturing ability, look into their abilities in terms of complementary and ancillary products that match your current product needs. Do they have resources for packaging and add-ons that would add value to your product in the marketplace? If you’re sourcing engraved wood boxes for wine bottles, do they also have resources for other wine-related accessories at competitive pricing? One great find that is often overlooked is a supplier that can help you coordinate production with other suppliers and also help you consolidate shipments.
d. Supplier Integration: Once you’ve found a supplier who can meet your product and value requirements, you’ve only gotten your feet wet in terms of maximizing the potential of this relationship. The next step is to integrate the activities of your two firms to create new value that could really boost your firm’s position in the market.
i. Touch Point Integration: The first place to start would be process integration in the Touch Points of your companies. That is, look to standardize the way your companies work together. You may find that your supplier actually has to rewrite your PO forms for production use, and by changing your format you actually save a day of production time. Do you require status updates for production progress? Why not have a single template that centralizes the progress of all orders and product development activities? Or better yet, make it web-based.
ii. Communication Standardization: Look to standardize key terms used to describe your product features. Decide on an email policy that would help minimize useless ramble and get to the heart of issues. My office utilizes a template for subject lines that helps us prioritize and file emails accordingly. Set up weekly appointments to review your orders and product developments if necessary. These meetings should be planned with a strict agenda and an action list should be emailed to all participants immediately afterwards. Begin the next meeting with a review of the action list from the last meeting.
iii. Production and Know-How Integration: Once you’ve solidified communication and touch point integration, the next step is to begin a know-how and process exchange between you and your supplier. Last year, I worked with a supplier of cast-iron bottle openers and after looking at his production process and product characteristics, we were able to help him solve a key product defect and reduce production time significantly. By integrating processes and know-how, you will have set an excellent foundation for both organizations to grow by not only enhancing current efficiencies, but by also “growing the pie” with product and service enhancements and new offerings.
This article is published on www.alibaba.com with permission from Rob Bailey and Convergent Sourcing Limited. All other reproduction of this article without permission is prohibited. Copyright Notice © 2006-2008 Convergent Sourcing Limited. www.convergentsourcing.com
