Leveraging Your Suppliers: What You Can Do for Me
Engaging in strategic partnerships with suppliers can net big gains.
When you host a big wedding reception, you don't just order dinner, flowers, music, a cake, and all the rest. You tap the expertise of a caterer, a florist, a band or DJ, a baker, and maybe even a wedding planner, to host a celebration for the ages.
Like the couple who assembles a team of wedding experts, a company that forms strategic partnerships with suppliers—of materials, components, services, or other items of value—can gain a lot from the resources and knowledge those partners bring to the table. Vendors may help you develop new products, save money on manufacturing, avoid quality problems, recover from supply chain hiccups, or seize new opportunities.
"It's not only when times are bad that you need to collaborate," says Pawan Joshi, executive vice president of product management and strategy at E2open, a provider of cloud-based supply chain software based in Austin, Texas. E2open's portfolio includes Collaborative Manufacturing, which is used by brand owners that engage closely with partners such as contract manufacturers and suppliers of materials and parts.
It's rare that a brand owner can place an order and then see the product arrive in perfect condition, at the right time, in the right quantity, and ready to be sold, Joshi says. Things change. You might order 10,000 units but then suddenly face a demand spike, requiring 20,000 units to capture all potential sales. Or of the 10,000 units you ordered, 100 might arrive with serious flaws. Then you'll need replacements, and you'll need to root out the cause of the defect.
When E2open's software detects a supply chain exception, it flags that item and notifies everyone who might play a role in the solution.
Say, for example, the brand owner suddenly has to double the order it placed two weeks ago. "Do you have the capacity to do that?" the software will ask the contract manufacturer.
"The software reaches out to the packaging supplier to ask, 'Do you have enough packaging to support this?' It reaches out to the component and ingredient manufacturers and their suppliers to ask, 'Do you have capacity?'" says Joshi.
The software also contacts the logistics services provider, requesting trucks to ship the extra volume.
If the partners all say yes, then everything lines up. "If the answer is no, then you start collaborating to resolve that exception," Joshi says.
Sometimes, a supplier might learn about a supply chain exception and propose a solution even before the brand owner asks for help. "You want to encourage people who are physically or logically closest to solving that problem to raise their hands and say, 'Here's the way to solve it,'" he adds.
This kind of collaboration is so important to one E2open client that the brand owner tracks how often each partner steps up to help solve exceptions, and it includes those metrics in its vendor scorecard.
Vendor managed inventory (VMI) is a tried-and-true form of supplier collaboration that reduces buyers' carrying costs. Under a VMI program, suppliers retain ownership of materials, components, or finished products until the buyer actually needs them for a manufacturing process or a sales channel.
Sometimes a VMI partnership involves a chain of several suppliers and service providers. That's the case, for example, for some of the wireless communications carriers that include Quality One Wireless (Q1) of Orlando, Florida, in their supply chains.
Q1 serves as an intermediary between many wireless communications carriers—such as AT&T, Sprint, Verizon, T-Mobile, and U.S. Cellular—and original equipment manufacturers (OEMs). When the carrier wants to offer a new wireless device for its network, Q1 works with an OEM to bid on that project. If the bid succeeds, Q1 manages the engineering and testing, and handles the logistics required to deliver the product to warehouses that serve the carrier's retail channels.
But those wireless devices may pass through yet another link on their way to the wireless carrier. In 2019, Q1 formed a partnership with WIT Logistics (a unit of Walker SCM in Valley Stream, New York) to collaborate on a VMI program for one carrier that Q1 serves. Under that program, ownership of the wireless devices passes from Q1 to WIT Logistics, and then from WIT Logistics to the wireless carrier.
"The customer places a purchase order with WIT," explains Rob Ferrentino, chief financial officer at Q1. "Then WIT places that purchase order with us. We fulfill that purchase order to WIT, and WIT holds onto that inventory."
WIT stores the inventory at a variety of strategically placed distribution centers. "As the customer wants or needs the inventory, WIT delivers it to them," Ferrentino says.
The wireless carrier designed this arrangement to support its VMI program. "The customer set up this agreement with WIT and then we set up our agreement with WIT in terms of fulfilling those needs," says Ferrentino. Q1 has also joined in similar relationships with other logistics companies to serve other customers.
Partnership for Innovation
Just as suppliers can help customers develop new products, a company might help its suppliers create products and services. For instance, food producer and agribusiness Land O'Lakes, based in Arden Hills, Minnesota, has collaborated with at least two firms to help change the way shippers move freight.
Working with Uber Freight, part of ride-sharing company Uber, Land O'Lakes helped to develop new lanes in Texas, where Land O'Lakes needed capacity and Uber Freight needed more carriers for its digital brokerage network.
Land O'Lakes also helped Plus.ai of Cupertino, California, test autonomous vehicle (AV) technology for tractor-trailers, hoping to eventually alleviate the ongoing driver shortage.
Land O'Lakes started working with Uber on its digital freight brokerage in 2017. "We helped them by defining what we were looking for as a shipper," says Jason Wicklund, logistics manager at Land O'Lakes. The shipper had two main goals: finding more truck capacity, and obtaining data to help Land O'Lakes refine its supply chain strategies.
Pricing data from Uber Freight's dashboard might tell Land O'Lakes, for example, that shipping a certain load on Thursday rather than Monday would save the company $250. And a tool that lets carriers rate specific shipper locations—much as ridesharing passengers rate their rides—helps Land O'Lakes make its facilities more attractive to carriers.
Building a base
At the same time, the relationship has helped Uber Freight enlarge its carrier base in Texas. Land O' Lakes' Purina Feed business needed more capacity in that market, especially on the lane between Nacogdoches and Fort Worth.
"By getting our shipments, they were able to build up some partnerships as well as leverage the tool to get more access to a large group of owner-operators in the country who operate in Texas," Wicklund says.
For Plus.ai, Land O'Lakes offered the chance to test a self-driving tractor-trailer on a northern cross-country route. Hauling a load of Land O'Lakes butter from Tulare, California, to Quakertown, Pennsylvania, in November 2019, the truck encountered weather conditions that earlier cross-country AV tests had not seen.
"They ran through rain, sleet, and snow," Wicklund says. "It was a great opportunity for them to understand how this works—whether the instrumentation and calibration were producing the right results—which they did."
For safety's sake, relay teams of drivers and support engineers took turns sitting in the truck throughout the trip. But the technology did most of the driving.
Land O'Lakes hopes to do more cross-country runs with Plus.ai as well as regional runs, Wicklund says. Company officials hope that AV will help create more capacity for the company's loads.
But that doesn't mean Land O'Lakes will replace drivers with entirely self-driving trucks. Instead, it hopes to transform the truck driver's job into something more attractive—more like the job of a conductor or pilot.
"If the driving is less stressful because the technology helps out, maybe more people will want to continue to drive semis across the country," Wicklund says.
Of course, collaboration may start long before it's time to fill orders. Suppliers can also play a big role in new product development.
"Very early on, a product development team—consisting of an engineer and procurement and manufacturing representatives—would want to understand feasibility," says John Heller, product marketing manager at Vertex Software in Ames, Iowa. That means learning, for example, if a supplier can make a product based on a particular design, and if the engineers have chosen the best possible materials.
"Additionally, as they're stepping through the design, they'll want to get feedback from the supplier about a better way of doing something," he adds.
Vertex's cloud-based platform lets product development teams and their external partners easily share 3D models of products in development, and exchange data and comments about the products and their components.
"More and more companies seek to bring in suppliers earlier in the process and to achieve greater amounts of collaboration early on, so they can mitigate risk, reduce cost, and have a better shot at meeting product expectations when it comes time for product launch," Heller says.
Engineers who want to share data about products under development often spend a lot of time extracting information from computer-aided design (CAD) systems and putting it into a format that another party can view without CAD software.
Often, that means taking screenshots of schematic drawings and attaching them to emails, perhaps in a PowerPoint deck, or asking people to convene over Skype to view a 3D model. Those are not efficient ways to share information or collect feedback, Heller says. And teams that use those methods must take extra steps to safeguard intellectual property.
Vertex extracts 3D models from CAD systems and presents them on its secure platform to any authorized party. A user can view the model from any angle, zoom in on subcomponents, extract parts of the design to display by themselves, draw circles and arrows, insert questions and responses, and otherwise use the platform to discuss the design.
A supplier might, for example, suggest swapping one material for another that is just as strong but costs less. Or it might suggest small design changes that let it take advantage of a process it already performs for another customer, creating economies of scale.
The Vertex platform significantly reduces the time it takes to prepare for collaborative sessions and can shorten entire product development schedules, Heller says.
Like the companies that use Vertex's platform, packaging distributor TricorBraun in Oak Brook, Illinois, works closely with suppliers to satisfy the needs of its own customers. TricorBraun serves companies in food and beverage, health care, personal care, and other industries with plastic and glass containers, closures, dispensers, tubes, and flexibles.
The distributor relies on suppliers to provide stock packaging that they manufacture and design, and also to produce custom packaging that TricorBraun, its customers, and the suppliers design collaboratively, says Mark O'Bryan, TricorBraun's chief operations officer.
To illustrate how its supplier partnerships work, Matt Ramsdell, TricorBraun's vice president, design and engineering, points to three companies that won TricorBraun's Development Partner Awards for 2019. The first, Currier Plastics, provided key support to several major design and engineering programs that year. "Achieving those success stories required both technical capability and willingness of this supplier to engage not only with TricorBraun but with the end customers, on site at their manufacturing facilities," he says.
Kutterer Mauer helped TricorBraun with programs that were complicated due to their part design requirements, automation and assembly needs, or commercial demands. "Their willingness to provide engineering support, think long term, and consider various tooling strategies has been a significant differentiator," Ramsdell says.
PSG Inc./Fast Plastic Parts will consider any challenge that TricorBraun's customers present. "They supported conceptual work that turned into running production off-unit tools, were willing to try a litany of resins in tools that were not designed or built for that purpose, and were able to manage some production miracles as we developed new child-resistant packages," he adds.
Not every partnership produces miracles. But for companies that take good advantage of suppliers' capabilities, the results may offer plenty of marvels to celebrate.