BUYER MANAGED SUPPLIER SYSTEM Part II

In 2012, i wrote an article in this blog about B.M.S - acronym for Buyer Managed Supplier System.

First of all, isn't  all suppliers are managed by the buying team to ensure conformance and reach the expected performance all organization strive for? Why this is different from the convention?

My answer was, you damn right, there is no difference and you are also wrong because in B.M.S, buyer take the challenge to develop a supplier from ground Zero and against all common convention, the procurement management choose a supplier which do not fit at all.

If an audit is carry out, this type of supplier will have almost nothing in the system you expect them to be.

- ISO standard? Zero
- Quality system? Almost do not exist beside them knowing this is OK and that is Not OK bases on "feel"
- Production method? Let visit a farm in Timbuktu which have some level of standard, just maybe
- Cost? EXCELLENT! Perfect!

When the west desired cheap product in the 1980s to early 2000s, they procured many products from country like China and Far East. Unless they set their own plants there, and thus have a real system in place, let think how the procurement management function.

B.M.S is still valid till today and it take a lot of collaboration effort, partnership and micro management system in place.

I am not telling you out there that this system is useful for all spectrum of industry. Neither am i saying it is not impossible. There are RISK involve.

It can be useful for non critical industry or item. Definitely not for spaceship or part which put life at risk.

In this system, organization use cheap labor and cheap cost of product to their advantage and it involve tedious works and follow up and meetings.

If we inspect the 7 profile of supplier, this kind of supplier will be a Newbie or a poor Follower.

Buyers will have a high upper hand as the party most needed this collaboration will be the supplier as your volume and value will be high.

Supplier development will be the key strategies and focus on the performances, quality and relationship, the three key element of crucial supplier management but in that particular order.

Procurement team are hard press all the time for lower price, highest quality standard and production line have the minimal line stoppages. Achieving this from established suppliers on quality and delivery performances will not be an issue but the purpose of business it to make profit and sadly the demand for higher margin and lower purchasing cost to consumer is the only consideration.

With B.M.S, the function of R & D lies on the buying organization. The setting up of process and quality control are also decided by the buying team and this includes the delivery deadline. Supplier will be monitored closely and reporting from suppliers to the buying team will be like a production department sending report to top management.

The key principal of a B.M.S system is as following:-

a) Cheap source of product
b) Quality are determine via close monitoring, monthly to annual auditing, third party inspection
c) Close reporting of information like  rejection rate, output, material quality report on daily to weekly basis
d) Costing of products are jointly developed and in some instances, prices are predetermined by buyers

Do not confuse this with sweat shop strategy, this is unethical and cautious to the buyers to ensure the cost of production do not translate to a sweat shop phenomenon.

To ensure this do not happen, ethical standard to be jointly develop from minimum acceptable wages, working hours, rest day and employee living condition.

It is not easy to manage but it is  workable.










 

SUPPLIER MATRIX - THE 7 TYPES OF SUPPLIER PROFILE

As promise.......

These suppliers which i mentioned on my previous blog, I will want to measure their relationship from the perspective of :-

- Supplier Relationship Management
- Innovation and Development


These two categories are viewed from the perspective of a customer angle, i.e. if these are my suppliers, how should i view them in term of asset value to my organization.


 High Relationship / High Development Matrix 

The Leader type 1 - i broke down leader into two type of leader. There will be leader who build their leadership in the industry based on close collaboration with customers. For them, customers are a treated equally as important and valuable and they tend to view customers as "king maker" and paramount importance.

The Innovator type 1 - again i also view there are two types of innovator, These are the supplier who will innovate their process in partnership with their customer. They used their superior knowledge and asset in the industry they are in to develop customers products.


High Relationship / Low Development Matrix

The Newbie - as new comers, they will build up relationship for long and short term access to the market. However, since they are new, they tend to be also a follower and thus have disadvantage in development of new package for their customers

The Follower - been a follower, i tend to rate them as a little of  a "copycat" and a good example will be the many companies set up in China nowadays and in the previous decade to capture the market based on copying competitor ideas. We can see how i able to link the Newbie and the Follower in one space.

Low Relationship / High Development Matrix

The Leader type 2 - they controlled the market by almost a monopoly and care little for customer needs. The only thing you will appreciate such suppliers is that they will provide the material or technology you needs and instead of they go to you, you as the customer will go to them because they are the leader and controlled their industry segment.

The Innovator type 2 - a typical technological company which innovate non stop and people will go after their product like a nothing like it before. They send information and knowledge to the public as a public relationship cum advertising program. Non existence eye to eye contact per Se.

Low Relationship / Low Development Matrix

The Protected -  since they are like the term i branded them, little motivation to build relationship, They may have the technological background but they will only develop what they need to market and not based on what their customer really need.

The Complacent - a typical organization who have little planning on their part. Satisfied with the number of account they have and often do not invest in program for improvement or expansion of capacity. They will be content to do the current products and will only wake up if feel threatened bur very often too late.

The Competitor - as the name sounded well, no need to elaborate. Why your competitor will collaborate with you? (to know why we have competitor in your supplier list, refer to yesterday blog)


Which type is your preference?

Actually suppliers can move in all direction depending on the maturity of the relationship. A newbie can be a leader tomorrow and so does a leader can be a follower.

SUPPLIERS - TYPE OF SUPPLIERS YOU NORMALLY FIND AROUND THE WORLD

Here i am back again active to my "old forgotten" blog. The season of sharing comes back to my thought again.

The other day i was busy preparing a new presentation for my upcoming program and it struck me right to my nose and slap me in the cheek the thought on my current curiosity. Suppliers!

How they behave and how they react to situational challenges and changes reflect on our own organization behavior when come to treating our own customers.

For one i do notices that there are currently (the list may grow, up to you guys out there to think for me now!) 7 types of profiling i can create.

a) The leader - a supplier which we all want to keep and we want to emulate ourselves, a type which take all challenges and issues in the strides and move along and solve it and make their customer happy. Example of such supplier on a global scale will be companies like Microsoft. They lead from the front and all issues from the global view are tackled straight on and they control the market share of their industry.The set the standard for other to follow.

b) The Innovator -  these type of supplier are in the Apple or Samsung category which always invent the new wheels to keep up with competition. They are less caring to their customers compare to the leader. By keeping up with new innovation, they keep consumer on their heels and made them greedy for more and more. The evil of capitalism is the greed for new and better product and keep the hunger for more and the angel are these companies who generate more profit. However, these two companies are the extreme, but i will be glad to take in any supplier who are in this stage. Innovator not necessarily control the market they are in but what i need is suppliers who willing to think and reinvent for customers.

c) The Follower -  these are supplier which will follow the competitor lead and even follow your needs as a customer, i will anytime keep them if they perform of course as a supplier. Follower philosophy are more conservative in thought then the other group of suppliers. It may be a safe bet they will strive for customers need.

d) The Newbie - as the name sound, these are new player in the industry and their only aim is not profit but penetration. A terrific example will be in the smart phone industry where cheap Chinese phone is competing with Apple and Samsung for the market share. They will be glad to bid their time to be less profitable or even marginally on the negative side just to get on board. I will generally very cautious to slightly optimistic to such suppliers. They will and may offer good pricing but quality and performance is another issue altogether. Their appetite will be very big but their tummy is only that small. 

e) The Protected -  The reason is they are there not due to their talent but a cell grown out of bureaucracy and politic. Such companies normally in the market due to government intervention to protect self interest. Another reason of their existence due to their been in the right place at the right time and serve the needs and unfortunately only them have a control over the industry, Example are a plenty. National oil companies, nationalized power companies, nationalized airline and shipping companies. As a corporate leader, if a majority or a big bulk  of your expenses are with them, god bless you. They do not behave like a supplier, more like giving you instruction what to do and assure themselves you will pay them first.

f) The Competitor -  these are suppliers which seem to be "lost into your track" and becomes your supplier. They actually are also either directly or indirectly your competitor. One wonder what the hell you are doing to engage such suppliers? Reason can be from what you do not have and you need from them. Remember the relationship between Apple and Samsung? They are in a supplier  - customer relationship before till now i think as Samsung are the world largest producer of chip needed for smart phone!

g) The Complacent - this is the worst of the lot frankly or equaled to the Protected. They got your account and they feel secure until the next review and they do not even to ask you anything or service you except assuming they will have your orders. They will sink and when they realize it will be too late. I know as i experienced such supplier head on before.

On my next blog tomorrow, i will share the supplier matrix.

Regards