Working with long-term suppliers presents unique challenges when it comes to managing a lean and cost-conscious supply chain. This is particularly the case for direct materials suppliers providing fabrication services.
The biggest advantage of long-term supplier relationships is a mutual understanding of technical needs and established processes. This ensures the supplier's ability to manufacture consistently high-quality parts. Often the supplier will maintain copies of prints in their own system and even flag new parts if they're inconsistent with previous designs.
A secondary advantage is the presence of developed, tested, and dedicated equipment and tooling. This allows the supplier to meet last-minute orders and even keep a safety stock of parts for same day delivery. Many long-term suppliers will also keep a rolling inventory of parts and manufacture based on historic orders while using forecasts as points of reference to gauge increases or decreases in overall annual demand.
These factors combine to minimize lead-times due to continuous production and readily available inventory. Shipping and delivery are also expedited since stock is available, and if a supplier is located within the immediate vicinity, it's not uncommon to receive deliveries one to two times per day by supplier maintained vehicles.
However, a number of disadvantages can stem from the longstanding supplier's reluctance to adapt to changing demands based on the precedence of past practices, often reaching back 10 or more years.
The main disadvantage commonly encountered is uncompetitive pricing along with an unwillingness to negotiate. The supplier may look at their year over year increasing production costs and use the original cost of the parts as a baseline for price increases. Since they don't have to stay competitive with respect to other shops as the parts are not taken out to bid they effectively trade off the value adds mentioned above for higher pricing.
An associated disadvantage is tied to quick order turnaround when making necessary changes to existing parts. The shop is often very combative and may ask for an excessive transition period or inventory buyout since they've produced parts in anticipation of orders without actually receiving those orders. Parts can often be reworked if changes are minor, and Engineers are often conservative when making changes to mature parts. But, it's certainly not uncommon to require major changes related to redesigns or serviceability issues.
As a company grows it may be necessary to revisit existing designs and change processes and manufacturing techniques to adapt to changing technology in order to lower the overall cost of the finished product to stay competitive within the marketplace. And, this may be the breaking point of long-standing relationships. Most commonly if one manufacturing method has worked in the past the supplier will be more than reluctant to invest in new tooling or develop new techniques.
The advantages of maintaining long-standing relationships certainly outweigh the disadvantages if the supplier is willing to review costs on a regular basis and stay competitive with the market through bids and evaluations. However, the disconnect often occurs with changing technologies and re-design efforts to lower the overall costs of the finished assembly. The existing supplier may simply be unable to recommend alternatives and unwilling or unable to invest in new equipment.