Our non-price attribute series continues today with a look at Production and Delivery Capabilities. After introducing the series here, we have also discussed Quality & Past Performance and Supplier Market Share.
Supplier capabilities are embedded within the quality and price of an item or service, but there may be other factors related to supplier production (and delivery) that can or should be considered when managing a sourcing project. These factors may or may not be directly related to the items and services currently being sourced
Production Capabilities
To streamline this series, I decided to couple the attributes below and using an umbrella term “production capabilities” to describe the entire list. It’s a basic description and not an industry standard term.
- Value-added or complementary products and services – While these both may have a price associated with them and be included as a part of the overall bid, we’re talking about additions to the current contract that increase its value and/or products/services that are not currently needed, but soon could be. Value-added products or services: While these may not be a part of your original requirements, there could be aspects of a supplier’s business like superior customer service or a more aggressive maintenance program, longer lifetime warranties, etc. that can alter the overall value of the contract or life of the product. These “value-adds” could be needed now and included in the supplier contract. It is also possible that they are not needed today but that the evolution of the business makes it highly probable that they will be one day. And then there are the supplier that offer complementary services – for ex. an electrical contractor/supplier that also offers janitorial services. A manufacturer that also does assembly is probably a cleaner example of a supplier who offers a service that enables greater flexibility in the buying company’s future.
- Capacity – Suppliers at or near full capacity may be able to offer to better pricing today than those with excess capacity (in theory, anyway), they may also better positioned to withstand a down cycle; at the same time, they may not be as flexible in their ability to support a demand increase nor in their inclination to support any potential reductions.
- Production process (and technologies used) – Regulations (current and future), customer preferences, and business trends are just a few of the reasons that the “how” of production can impact a sourcing decision. For example, production that occurs in regions with high levels of child labor could present a supply chain risk that is too large to bear, even if the price was right. Sustainability is another example – consider a supplier that has a distinct production process which creates a larger or smaller carbon footprint than the competition. Similarly suppliers using the next generation of a technology for production may be more expensive today, but less expensive over time; these suppliers may be better able to help develop new innovations.
- Operational & technical capabilities – Beyond the delivery of a specific bundle of items or services, having a supplier with superior operational and technical capabilities can be a huge advantage in volatile markets. For example, we may see in Q1 and Q2 of this year whether or not any of the disk drive manufacturers that were hit by the Thai Floods were better prepared/adapted better than their competitors.
- Geographical reach – One dirty little secret of global Chief Procurement Officers is that they really struggle to find global suppliers. A supplier’s geographical reach matters to these leaders. It may also matter to a small procurement department based in St. Louis that is looking to open a new office on both US coasts this year and one in Atlanta and Dallas in 2013. Of course, buying organizations may have nationalistic customers that want to preclude certain suppliers based upon their “reach” or location.