Businesses rely heavily on their suppliers, so any interruption in the supply chain could seriously impact their long-term viability.
Choosing the right suppliers and using performance measures to re-evaluate existing supplier relationships can help reduce risk and prevent problems down the line.
"The success of any business depends on its relationship with its customers and suppliers," says Becky Morgan, president of Fulcrum ConsultingWorks Inc. in Cleveland, Ohio, which specializes in operations consulting for manufacturers.
Customers don't care if your failings are caused by your supplier, she explains. "You're held accountable."
Morgan says there are three key factors to consider when evaluating supplier relationships:
The suppliers' financial and organizational stability.
How much of a priority you are to them given your size.
How willing and proactive they are in communicating with you. Are you notified of issues before they arise so you can be proactive instead of reactive with your customers?
Track performance. Routinely track the performance of your key suppliers so you can get ahead of any problems.
"The more you understand the suppliers' performance, the more time it gives you to take action and avoid problems," says Sherry Gordon, author of "Supplier Evaluation & Performance Excellence" (J. Ross Publishing; $59.95) and president of Value Chain Group LLC, a Concord, Massachusetts, consultancy specializing in supplier relationship and performance management.
You might pick up on internal problems or see warning signs that will give you time to take action, she notes.
Consider four factors when measuring performance:
Cost -- not just price, but does it cost you money to do business with your suppliers?
Quality of their products or services.
Responsiveness to your needs.
Their use of technology -- are they more efficient because they adopted new technology?
While there's a long list of criteria you can rate them against, figure out the factors most important to your business and track those, Gordon recommends. You don't need to do that for every supplier, just those with the most impact on your business.
Conversely, if you have a supplier that's a problem anecdotally, collect data specifically on that one so you can have a "fact-based talk" with it about any issues, Morgan adds.
Investigate problems. If there is a problem, communicate it to the supplier and find out why performance isn't satisfactory, says Jiamin Wang, a professor of management at Long Island University in Brookville. Don't just automatically terminate the relationship.
"Contemporary supply management dictates to maintain long-term partnerships with suppliers," he says.
You may discover the blame isn't totally on the supplier, Wang notes. Maybe an order was delivered late because the buyer wasn't clear about size or specifications, he says.
Termination. If a problem continues, you may have to terminate the relationship.
Howard Kipnes, president of Cedar Knolls, a Ronkonkoma-based custom modular-home builder, once dropped a materials supplier because of "internal administrative dysfunction."
"We're constantly observant," says Kipnes, who works with at least a dozen suppliers. "Poor supplier performance has a negative reflection on my business."
He weighs price when choosing a supplier, but quality and customer service in many cases are more important, he notes.
For the most part, Kipnes likes to maintain long-term relationships, but he has taken on new suppliers when they offer a new product or bring something different to the table.
In general, it pays to not rely on a single supplier in case problems arise, Wang notes. "It's wise to maintain a balance of dependency," he advises.