Five Reasons to Change Manufacturing Suppliers
The reason a strong manufacturing base is so important for any country's economy is that for every industry making a certain product there is a huge number of suppliers that feed it with raw materials, components or sub-assemblies. Irrespective of how much vertically integrated a manufacturer is, choosing who supplies incoming streams is crucial because the supplier's processes are external activities that cannot be controlled like in-house ones and can be equally destructive if things go awfully wrong. Breaking ties with an existing supplier and switching to a new one is a difficult decision, however there are scenarios that can justify such radical action.
1. Better Price
Lower finished product costs are an eternal target and one way to achieve it is to of course buy cheaper. Unless you can afford to keep prices at premium levels like Apple or Mercedes-Benz, the gain can then be passed on to the customer as a major incentive for increased sales. Lower supplier costs are the main reason behind the huge swift of global manufacturing to Asia in recent decades, a trend that still continues despite diminishing cost differences.
2. Reliability in Quality & Deliveries
Nothing can beat reliability in quality and on-time deliveries. If an existing supplier is unable to resolve these issues it is definitely time to move on. There is no worse disruption than sending items back to be reworked/replaced or to have to stop whole production lines because of lack of incoming stock. Needless to say that despite the time pressure to change, it is important to run a very thorough investigation to find out whether the new collaboration will indeed phase out these very important problems.
3. Geographical Proximity
Globalization brought the issues of longer transport times, higher transport costs and difficulties in collaboration due to long distances. Smaller companies that work with smaller quantities and do not have the luxury of armies of engineers to travel back and forth on a permanent basis are most times better off looking at local collaborations. Additionally, assemblers that want to switch to shorter cycle times and just in time (JIT) inventory schedules have a very strong incentive to switch to local suppliers and possibly form what we call as manufacturing clusters.
The reason suppliers are so valuable is that they provide knowledge beyond what is available in-house. A new higher performance material, a faster microchip or a lighter and higher performance sub-assembly can be natural winners in the marketplace and a very good reason to drop or keep a supplier. A good example is that of Apple and Samsung. Although they are direct competitors in consumer electronics and bitter opponents in courts, Apple still relies heavily on Samsung chips because it values its know-how, quality and reliability.
5. Better Collaboration
We mentioned earlier the term manufacturing clusters. The reason these clusters exist in the first place is that the whole supply chain operates under terms of exclusivity and collaboration beyond the scope of traditional supplier-buyer relationships. Market pressures, product complexity, intense competition or simply the need to move technologically to a higher level might imply a switch to suppliers that are willing to share deep knowledge, develop products and processes together, eventually act almost like a single company.
Switching suppliers is not an issue to be taken lightly. The higher the level of collaboration and information sharing, the more difficult it is to back off and perform a smooth transition to a new supplier. For this reason, at the first thought of any changes it is best to save precious time and energy by trying to improve the relationship with an existing supplier. Unless one of the above scenarios is just too powerful to resist, leveraging the fear of losing a major customer can work wonders in improving existing supplier relationships if done correctly.