Successful Supplier Selection and Fit for Your Company

Hi, my name is Michael Gilreath. I’m Director of Supply Chain for Taylor Guitars. Thanks for attending my presentation on Successful Supplier Selection and Fit for Your Company. I want to walk you through my career path and the different industries that I have been in, different roles to help you understand why this is a subject that’s near and dear to my heart, and something that I’ve spent a lot of time invested in.

From the start, I was at Fender musical instruments, and I was really only involved in our current factories. I began the planning department there. I was given that responsibility to start the demand planning and factory scheduling as its own standalone department, which was really exciting to do. Over time, that role evolved to Director of Global Sourcing and Procurement as well, because we invested a tremendous amount of resources in bringing guitars and amplifiers in from offshore. So I began to absorb that responsibility. That’s really where I began to get a good feel for how to manage suppliers.

From there, I went to PV Electronics where I was involved with International Sourcing and Procurement. More of the same but a little bit different because now I’m working with electronic components as well not just finished goods. After PV, I went to Gemini DJ and Pro Audio, where I was Director of Supply Chain and GM of Gemini China. That was pretty interesting, because I actually set up an office in China, spent a lot of time on the ground in China with specific factories trying to improve their performance.

From there, I went to GET enterprises. This was a pretty big left turn. GET produced and imported melamine dinnerware and plastic drinkware for the restaurant and food service industry. So it’s a very different set of suppliers. All of it Asia based again, but it was very different—very different customers very different expectations. So I had to learn the business there. That was interesting.

Then, I came back to more of an electronics background with Nortec Security Control. We did home security, home automation, and garage door openers. After Nortec, I went to a company called [Unintelligible] Irrigation, which was micro drip irrigation for the agriculture industry. A very different industry, very different supplier base, very different process for manufacturing. So everything that I knew was very different, but it was a great opportunity to learn and see things in a different light.

One thing I learned as I went through all of these different positions, companies, industries, supplier basis is that the fundamentals of choosing a strategic supplier and how you manage them remain the same. I really got a good lesson in that when I was at GET when I had some issues I had to work through with the supplier. The same approach held true and I got the same results. It was pretty exciting to know that what I had learned and what I had been doing in a very different industry really applied.

Building successful supplier relationships, what are the three keys, as I see them? Number one, company culture fit is vital to the success and strategic relationships. How well do you mesh? Is your company going to be a good fit with theirs in terms of how you work? What the scalability of your projects are? Your expectations? Relationship management leads to ease of doing business. When there are conflicts. When everything’s going well. When you want to grow. When you want to make some changes. How strong is that relationship? When you are in stressful situations like we’re in right now globally with COVID-19, how strong are your relationships? That will help you get through those tough times. Lastly, metrics are vital to success. You need to hold one another accountable to ensure ongoing success and improvement.

I’m going to spend some time walking you through each one of these, provide some some anecdotal information, and kind of talk you through how things have worked well for me. Hopefully, you’ll get some good takeaways from them.

Company culture, what does it mean? How does it feel? How does it feel inside your company? Are you you friendly? Are you warm? Are you just all business and metric driven? Do you want that good close business relationship where you spend spend time together or do you just want to place an order and then make sure that it’s right? What are your expectations in terms of how your company cultures mesh?

Another thing is just your meeting culture. In other words, business meetings. The way my meeting culture was developed, we had a nice agenda. We talk through issues. We were very specific as we went through. We documented what the issues were. We collaborated with our partners to overcome them or provide information. I worked for a company. I was in a meeting at their factory, and two or three times an hour, they would get a cell phone call, and they would just answer, not even say, “Oh, excuse me, I’m sorry about this,” they just answer to the phone. It was really frustrating and really challenging. Ultimately, they just weren’t the right fit. That’s where my sourcing manager had taken me, but it really didn’t feel like they were the right mesh for us to collaborate to grow. For me, it was pretty unprofessional in the way they approached their business meetings.

Same thing for our own company. What is our what is our meeting agenda like? What is our meeting culture like? Are our suppliers comfortable in that environment? It’s important to make sure that there’s a good mesh there, and that you can tolerate these long business meetings that happen.

Strengths and weaknesses, are they complimentary? Are you a good fit for one another? If you’re deficient in an area, are they able to overcome that? If your product development group, your engineering is pretty good at getting it 90% of the way done, can you handoff and expect to work with the supplier to get that last 10% to get the last mile home?

Then, expectations. What are your expectations of one another? I was working for a company where product development guy had taken the lead in supplier selection, and really didn’t understand the company culture fit component of this. He chose a tier one manufacturer. He misrepresented what we were as a company, and made it look very appealing—misrepresented expectations. At the end of the day, after a year and a half of really struggling a lot, they kicked us out. They said, “We just can’t operate this way. We’ve committed a a production line to make your products and it’s supposed to be busy at least 70% of the time. I don’t have enough orders for this. You promised me we would sell X 1000 of these, and that you would order every single month. You would do this.” And frankly, we weren’t there, we weren’t able to do that. It was a bad fit culture wise.

So we took the product, we went back to one of our regular suppliers, and it was a good match. They knew what to expect. They knew what worked, what didn’t work. They could help us overcome any of our shortfalls. We ended up working out well together in the end. The product was a success and that relationship was a success. Fishing in the wrong bond is not a good idea—doesn’t always work out very well.

Relationship management, expectations. Again, kind of visually looking at your strategic partner. What do you expect from them? Do you expect them to be able to finish your projects? Do you expect them to deliver on time at the drop of a hat? Do you expect that you can order whatever you want and get it within a reasonable amount of time. Then, on their side, what are their expectations? Do they think that they can deliver? I’ll take any order at all deliver whenever I want. What are the expectations around accountability? What are the expectations around quality of service, around quality of the product? Is 10% failure acceptable? Nope.

You really need to explore expectations in the relationship management and make sure that you’re developing a good relationship with the decision makers and understand what’s expected for you and for them. They may expect a 12 month rolling forecast that they can produce the same amount every single week or every single month. It doesn’t always work that way. Some companies can’t provide that, some companies aren’t comfortable with that. What are your expectations?

Stressful situations. We’re in one right now. We’re in a global pandemic. It’s really been stressful. When Asia started to shut down, China shut down. Fortunately, I don’t have much sourced in China right now, but I have some things there. What am I going to do? Where am I going to be short? What do I have to do to make sure that I don’t run out? Then, as things rolled into Korea, and Japan, how are we going to manage this as a business? How are we going to make sure that we’re getting what we need to keep our doors open if we’re allowed to keep our doors open? How can we keep producing? How do we keep receiving quality goods and services so that my company doesn’t shut down?

If you have a good relationship, you can be transparent with your strategic partner? “Hey, caches a little tight this month. Can I take an extra 15 days?” They may ask the same thing. Take them out of business for 45 days or 60 days, and now they need to start shipping. You have too much inventory already, can you take a little more to help them out? Can you get their cash flow going to make sure that they survive? If they’re strategic to you and they’re important to you think, through those things. Rather than just push and expect them to survive on their own. That’ll be very valuable. That give and take is super important as you assess your strategic supplier base and you work with them, and make sure that you both remain healthy and viable.

Metrics. Understand what you want from the supplier and ensure clear understandings. I was working for a company and we had our own factory in Asia. They were not a very good supplier in terms of on time delivery. However, their metrics were. 95% on time, 98% on time, how is there such a difference? I was showing 35%, 32%. Their definition of on time, as they reported up to corporate was, “Well, we were supposed to ship $10 million last month, we shipped $9.7 million 97% on time.” Not if it’s the wrong mix, not by my score, not by my calculations. So understand what you want from the supplier.

For me, we were in a bad situation corporately. We had way too much inventory. So how do we manage that? Well, I needed to get my house cleaned up first. So I fixed the demand plan, collaborated with sales understood what we expected to sell, and then roll that into a supply plan from my factory. That gave them a rolling six month supply plan. This is what you should build for me every single month, every single week, for the next six months. Then, they were accountable to doing it. So what they weren’t understanding is I need this shipment every single week. Once we began to look at that and measure that, and they began to see that they’re really only 35% on time, and we had to fix it that, that became a big challenge.

Once we agreed to that definition, which really took about a month of a lot of late night phone calls and talking, negotiating, arguing, but eventually we got there. Then, we began to review every single week. What were your misses. When we had the misses, we put them into a Pareto analysis. Why did you miss? How did you miss? What happened? So we developed reporting, and we began to review the results as often as necessary. In this case, it was every week, because they were 80% of my supply. I had to depend on it being on time, so that I wasn’t late for my customers. So we reviewed it every single week.

Now, the most amazing difference of opinion to me happened after Chinese new year, one year. We were doing the analysis of, whose responsibility is it? They would say, “You know what, you didn’t give me enough lead time on this PO.” I said, “I would try and I couldn’t do it.” So that miss is on you and that doesn’t count against us. Fair enough. Gotcha.

In this case, it was actually In Chinese New Year. They committed they had promised dates, plenty of lead time on their orders, but what happened was it didn’t have a good retention rate with their workforce afterwards. They only got about 50% of their workers back. It’s a typical—usually there’s more than that, but it was a big problem for them. Because of their workforce shortage, they were late. But they said, “That’s not my fault.” I said, “Sure, it is.” When you report this, “No, that’s not my fault.” Whose fault is it? “It’s HR’s fault.” Where does HR report? Are they on site? Do they manage your workforce? “Yeah.” I said, “Then, that’s your fault.” Your factory. You promised, as a factory, that you would deliver on time. They failed, and it was quite an argument. It was like pushing a rope uphill. But finally got to the point where I had to go to the gym of the factory and say, look, and he’s like, “Well, yeah, of course, it’s our fault.

What happened as a result of that, and the reason that we looked at the results and put them in a Pareto analysis, is because then we could find root cause. For them, the root cause was they didn’t get their workers back. Pretty simple. Happens once a year. Well, the next year happened to change their plan for retention, for the workers that came back to the factory to change the way they paid out their bonuses, we’ll give you half an hour and half when you come back. It incented everyone to come back. They had over a 95% retention rate after the next Chinese New Year. So ultimately, the business worked better. They understood what we wanted from them with very clear understanding of what results were expected. We reviewed every week until we got better. Ultimately, we developed a scorecard. We collaborated to improve the results.

It’s one thing to have a report card and say, “Well, you’re bad. Here’s what was wrong.” But when you begin to collaborate to improve results, that’s what’s important. So if I have a supplier that’s chronically late, and it’s because they have a part that’s a long lead time, well, does it help you if I give you a forecast, so you know what I’m going to buy from you every single month? If it does, here’s your forecast. I’ll commit to that forecast. I’ll commit to those long lead parts. I’m responsible for that, but I expect you to improve your on time performance. If you collaborate together, it works really well. Be objective, but work together when you find some differences.

Kind of recap everything. Really assess the culture fit. It’s really important to make sure that your companies work well together, that you have the same expectations, that you’re scalable. If you expect to grow, you want to find a partner that can grow, too. You want to make sure that you work well together.

Secondly, invest time in the relationship. It’s so important when things go wrong, and ultimately they do, you need to have that good relationship so that you know how to work through the problem together. It’s not always a one way street, it should be two way. You should be able to collaborate and fix things together.

The last thing to hold each other accountable is metrics. They should be objective, they should be defined, and they should be understood so that everybody has a clear understanding of what they’re supposed to do, what role they play in, what’s deemed success. So you don’t have time to put all of these into every single supplier, but if you do this for the majority of your spend, and your strategic suppliers, it’s going to go a long way in helping you be successful and helping your suppliers be successful.

I hope you’ve enjoyed the presentation. I hope it’s been helpful to you. Thank you for your time. If you have any questions, I think there’s a place for you to ask them on screen. I appreciate it very much. Thank you.