Keys to a Successful Supplier Transition

Implementing a supplier transition is always challenging especially within the MRO space. Plant and warehouse managers who are happy with their incumbent suppliers generally have little incentive to gain. Sourcing and procurement can present all the cost savings figures they want but this means little to them as it is not typically something which they are measured on. The current supplier provides them with the items they need in a timely fashion, provides value added services and offers training free of charge. Most importantly there have not been any significant issues throughout the relationship. Their question is why risk damaging a good thing? The rebuttal is simple. How do you not know if something is better if you are unwilling to try it?

Of course, with every transition you must evaluate the associated risk. If the risk outweighs the long term benefit the transition is not worth undertaking. But if the savings are substantial, and the quality of the product or service exceed current standards, ultimately achieving an overall lower total cost of ownership it’s time to discuss supplier transition. The major roadblock here can be overcoming an unwilling plant manager. They may not see the long term benefit or have little skin in the game. They fear that the transition will ultimately create more work for them especially if it doesn’t go smoothly. So how do organizations overcome this challenge and gain buy-in?

Within some organizations this happens inherently. Companies with employee stock ownership plans tend to create an atmosphere where all employees care about the bottom line since it has a direct performance on the stock which they own. As long as the message is clear that dollars saved translate directly to bottom line revenue employees generally are much more cost conscious. However, with the majority of organizations this is not the case. Some companies I have seen have bonuses tied to savings goals for plant and warehouse managers. Others have a budget for their associated department. If cost are being cut there becomes extra room in the budget to work on other projects, replace dated equipment or create a better work environment. These types of environments tend to create increased engagement from stakeholders especially when it concerns a potential supplier transition that reduces total cost of ownership.

In some cases, the initiative is driven top down and senior management pushes the change without associated buy in. This tends to create friction not only between corporate and the plants but also between the plants and the new supplier. The plants will take even the slightest opportunity to make the new supplier look bad or make life difficult for them just to prove corporate wrong. Resentment such as this is easily created when plant managers and employees are forced to do something they don’t want to do.  It’s imperative the right steps are taken to alleviate any concerns the plants and end users may have with the new supplier. Be transparent and involve them in the beginning of the process, listen to what they have to say and gather their opinions. Ask them to help you shape the KPIs and have input in the contracting process. The more you get their buy-in to the process the more likely the supplier transition will be a success.