Supplier Development Programs: An Empirical Analysis

INTRODUCTION In recent years, many U.S. companies have come to recognize the crucial role that purchasing and materials management activities play in determining overall corporate performance. The response to this realization has been a careful review of current practices in the purchasing and materials management areas. Of main concern in many U.S. companies is the buyer-seller relationship. The traditional relationship between a buying firm and its suppliers has been characterized as adversarial and has placed emphasis on multiple sourcing, competitive bidding, and the use of short-term contracts. This approach tends to focus on a short-term view of the purchase price and quality of a product or commodity, without taking into consideration adequately the long-term capabilities of individual suppliers.|1~ Recently, however, in response to escalating competition, shorter product life cycles, and rapidly changing customer demands, more companies have become concerned and involved with developing long-term supplier capabilities. Generally speaking, supplier development refers to an organization's efforts to create and maintain a network of competent suppliers.|2~ From a narrow perspective, it can be defined as identifying new sources of supply where no adequate ones exist. Defined more broadly, however, supplier development also involves a long-term cooperative effort between a buying firm and its suppliers to upgrade the suppliers' technical, quality, delivery, and cost capabilities and to foster ongoing improvements.|3~ The ultimate goal of these programs is to form a mutually beneficial relationship that will help both firms compete more effectively in the marketplace. Although the supplier development concept has been around for many years, little has been documented about the actual practices of the programs in terms of their objectives, key characteristics, and effectiveness. Consequently, the basic purpose of this study was to gain a better understanding of current activity and involvement in supplier development. Specifically, the objectives of the study were: (1) to determine the current level of companies' involvement in supplier development, (2) to determine the characteristics of existing supplier development programs, and (3) to assess the accomplishments of these supplier development efforts. THE STUDY A structured survey questionnaire was developed to gather general information about the respondent companies, along with specific information about their supplier development activities. The questionnaire was divided into five sections: Company Demographics, Supplier Development Program Characteristics, Supplier Development Program Objectives, Importance of Supplier Capabilities, and Supplier Development Program Effectiveness. Five hundred survey questionnaires were mailed to members of the Sixth District of the National Association of Purchasing Management whose names were randomly selected from a membership list. Of the 500 surveys distributed, 81 usable responses were returned, for a response rate of slightly over 16 percent. The responding companies represent a wide range of industry types, sizes, and purchasing departments. Table I displays some of this demographic data. The companies responding also vary in how the purchasing function is organized. The responses ranged from 1 (decentralized) to 7 (centralized), with the mean response of 4.53. This score, coupled with the fact that 42.6 percent of the respondents chose response 6 or 7 on the scale, indicates a slight preference for a centralized purchasing structure. STUDY FINDINGS Supplier Evaluation Practices As the first step in discussing the concept and practices of a supplier development program, respondents were asked a series of questions regarding their supplier evaluation practices. These results are summarized in Table II. More than 75 percent of the respondents reported that they evaluate suppliers regularly. …