How to Source in a Recovering Economy

By Susan Avery

February 22, 2011 at 11:11 AM

Purchasing professionals who were open and honest with suppliers during the recession are finding the effort worthwhile: It’s made it a little easier to do business in the recovering economy. 

Factory orders are starting to pick up and suppliers with lean operations are remembering buyers who turned back deliveries and pressured them to lower prices during the recession. The suppliers are filling orders first for purchasing pros who treated them with respect.  

“I think those buyers are paying a significant price as demand has come back and supply has tightened,” says Jonathan Hughes, partner and sourcing and supplier management practice leader at Vantage Partners in Boston, Mass. “The balance of power has shifted.

“Procurement operations that were strategic and far-sighted during the downturn saw an opportunity to be collaborative and cement relationships with suppliers,” he says. “Getting through the recession together put these companies in a much stronger position to be their suppliers’ customer of choice coming out of this.” Two companies in that strong position are Rowan Companies and Philips Home Health Solutions. Here are their stories:

Rowan Companies

Managing risk is a way of life for the supply chain management team at Rowan Companies, a Houston-based oil drilling contractor which has rigs all over the world including some regions now experiencing political instability. 

“In certain regions where we need to support operations we’ve gone to those rigs to make sure they have critical spares on board based on our inventory management system,” says Brent Shinall, vice president, supply chain management. “If they don’t, we put on high alert the manufacturers to get these spares ordered and delivered as soon as possible.” Drilling pipe is an example of a critical spare for Rowan. 

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Shinall and his team have segmented the company’s supply base. Of a base that numbers around 3,000 suppliers, they consider 59 to be critical suppliers. Of that number, there are 10 that they speak with daily. “We communicate our forecasts for drilling and critical parts and they communicate back with their capacity and if they see any potential problems.” 

As important as it is to Rowan to make sure the rigs have all the critical spares they need in inventory is the management of the logistics to get the rigs and parts that keep them operating where they need to go, even sometimes to a remote location, says Shinall. That means working closely with third-party logistics providers to ensure that the company has the lanes it needs when it has to move a rig and its parts to another location. 

As Shinall sees it, being a customer of choice all comes down to how the supply chain management organization views its relationships with suppliers. While he says Rowan has always had strong relationships with its suppliers, the company recently starting holding formal business reviews with them. “When we bring them in to share information, they know that we value the relationship,” he says.  

Philips Home Health Solutions

As the economy recovers, the global sourcing operation at Philips Home Health Solutions pays close attention to the capacity levels of its suppliers and keeps a watchful eye on pricing, says David Butler, senior director, global sourcing and managing director of HHS international operations. Philips HHS is headquartered in Murrysville, Pa.  

Suppliers, particularly those that provide customers such as Philips HHS with electronic components, are wary and hesitant to add capacity, Butler says. To ensure that Philips HHS has the parts it needs to make the medical products it provides its customers, he and his team share extended demand forecasts with suppliers. 

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“We are very transparent in sharing our product development plans with strategic suppliers and in return expect their commitment to invest in our business,” Butler says. 

Philips HHS uses standard risk management tools such as the z-score approach to track supplier financial stability. Butler and his team also hold quarterly business reviews with suppliers. Of the high-level talks he says, “I can’t remember the last time we had a negative surprise from a strategic supplier.” 

How to become a supplier’s customer of choice:

David Butler at Philips Home Health Care Solutions suggests purchasing take these steps to become the customer of choice to suppliers:

  1. Be transparent.
  2. Create commodity strategies and follow them.
  3. Avoid competitive bidding to get to the optimal cost point. Instead, develop strategic relationships that enable early supplier involvement, sharing of product/technology roadmaps and open book pricing models. 

 



Tags: electronics logistics Strategic sourcing Supplier relationship management
Category: News Article

Susan Avery

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Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com. 


Please add a comment

Posted by Hijo on
On June 17th, the Treasury Department rejected the reqseut for additional funds for suppliers. At least two factors were in play, I think. First, the Obama Administration is increasingly under attack for supporting industry in the U.S. and bailouts are widely unpopular in opinion polls.The second factor could be a more sophisticated strategy. The urgency of the situation at suppliers supports the need for a speedy approval of the so-called section 363 sale of good assets of bankrupt General Motors to a New GM, which is currently under consideration. Many special interest groups are opposing the sale and are trying to slow down the process. By not granting funding to suppliers, the government could be advancing its GM case, adding another good argument as to why the sale needs to move ahead quickly.In any event, you can be sure that lawyers for GM will use this additional argument in court
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