The Supplier Development Program: A Conceptual Model

The Supplier Development Program: A Conceptual Model In order to compete effectively in the world market, a company must have a network of competent suppliers. A supplier development program is designed to create and maintain such a network--and to improve various suppliers capabilities that are necessary for the buying organization to meet its increasing competitive challenges. This article details a conceptual model that describes the organizational decision process associated with a supplier development program. The proposed decision model can serve as a guideline for designing a supplier development program that can link purchasing strategy with a firm's overall corporate competitive strategy. Empirical evidence drawn from the experience of several companies actively involved with such a program is used to validate the model. In recent years, purchasing and materials management activities in many U.S. companies have been getting close attention from top management with respect to their contributions to overall corporate performance. This increasingly sharp focus is a direct result of mounting pressures--internal and external--from sources such as rapidly rising material costs, high costs of capital, and increasing competition from foreign competitors. In response to these mounting pressures, some purchasing managers have upgraded their buying and management personnel through better selection and training. Many have also reexamined their existing materials management policies. The recent introduction of "just-in-time" production and purchasing has created an additional impetus to reconsider many traditional purchasing objectives and practices. One of the key areas under scrutiny involves supplier development programs. Traditionally, one of the most important objectives of the purchasing function has been the development of a network of competent suppliers. In the final analysis, a firm's ability to produce a quality product at a reasonable cost, and in a timely manner, is heavily influenced by its suppliers' capabilities. Consequently, without a competent supplier network, a firm's ability to compete effectively in the market can be hampered significantly. Yet, a careful review of existing textbooks and research articles appearing in the professional journals reveals that very little publication space has been devoted to the subject. In fact, most of the existing coverage of supplier development topics in purchasing texts tends to be brief and lacks specifics. [1] Moreover, a review of recent issues of the professional journals in the field identified only one research article directly addressing the supplier development issue. This article represents one step in filling that void. The basic purpose of the article is to conceptualize the supplier development program. Specifically, it proposes a conceptual model that describes the organizational decision process for creating and refining a supplier development program. The model can also facilitate implementation and future research into the subject area. Interwoven throughout the article is empirical evidence drawn from several companies that actively use supplier development programs; this evidence is used to validate the model. OBJECTIVES OF A SUPPLIER DEVELOPMENT PROGRAM The basic objective of the purchasing function is to secure competent supply sources that will provide an uninterrupted flow of required materials at a reasonable cost. This involves first the selection of competent suppliers in terms of technological, quality, delivery, and cost capabilities--and second, it requires working with them to upgrade their capabilities. A supplier development program, then, can be defined as any systematic organizational effort to create and maintain a network of competent suppliers. [2] In a narrow sense, it involves the creation of new sources of supply when there are no adequate suppliers to meet the firm's requirements. …