The difference between forming a successful relationship with a secondary supplier and having to re-engage the market within a couple of months rests with identifying the core reason for the relationship, the main drivers of the decision process, and following a structured research and selection process to ensure all key criteria are satisfied.
To ensure a mutually beneficial and stable relationship with the secondary supplier they must be able to meet the core needs that prompted the search. The most common reason to seek and develop a secondary source relationship with a supplier is simply to alleviate the risks associated with production interruptions due to complete dependence on one supplier for a portion of the component materials or assembly services. However, manufacturing capabilities can also limit the current supply base and cause shortages in supply where the manufacturer or fabricator is not able to meet volume requirements consistently. This can also include variability in quality.
Another common motivation is the need for more competitive pricing. This can be caused by price fixing by a few large consolidated suppliers in a certain region or moving from research and development volumes to production volumes. Market pricing is also a key factor in evaluating new product introduction options and target pricing.
The research and selection process also needs to be adjusted depending on the type of supplier that's being sought. The most common supplier types can often be separated into raw material manufacturers, distributors, fabricators, and contract manufacturers. Raw materials manufacturers and distributors can include commodity and specialty chemicals, aggregates, and industrial products. Component distributors range from electronic and industrial supplies to PVF and hardware.
These two supplier types are in stark contrast to both fabricators and contract manufacturers. Here, fabricators can include machining operations such as milling and turning, sheet metal stamping and forming, casting, forging, and injection and compression molding as the main categories. While contract manufacturing can include encapsulated electronic manufacturing services such as cable assemblies and printed circuit boards to more complex electro-mechanical and optical sub-assemblies all the way through the manufacture of the complete finished product.
Both the core need for a secondary-supplier and the type of supplier determine the complexity and time frame of the supplier identification process, but can be captured within a five stage process.
The first step in the process is data collection. This includes identifying the regional scope and initiative drivers, collection, review and understanding of the technical needs and specifications, and determination of estimated annual volumes, order preferences, packaging and shipping requirements such as full container loads, and the final destination and frequency of orders.
Once all requirements are clearly scoped out the initial research phase can be undertaken to determine supplier limitations. This is driven by the team's technical subject matter expertise and utilization of internal knowledge bases and partner networks.
With an initial long list in hand each supplier can be contacted individually to determine if they're a good match for the stated need. Often the best approach is to compile a summary of each supplier’s capabilities for ease of comparison. This includes reported annual sales, financial stability, manufacturing facility location, size, and industry focus. An approval of the short list that results is a big part of making sure expectations are reconciled with need and everyone on the team is on the same page.
With a list of vetted suppliers determined, an RFP can be carried out to validate the initial conversations and gather line item pricing. This begins by executing non-disclosure agreements to protect intellectual property and gathering a full bid package of items and detailed product specifications for pricing evaluation. Key drivers include validating financial stability, and manufacturing capability along with equipment lists, partner lists, and secondary operations. Verifying certifications and standard operating practices such as ISO13485, ISO9001, ISO14001, OHSAS 18001, FDA, and ITAR is also important at this phase.
The RFP process continues by gathering and analyzing pricing per line item or product, conducting initial pricing negotiations, and preparing a market summary report for the team.
The final step in the supplier identification and selection process is qualification and contracting to ensure a stable long term relationship. This includes selecting a final set of suppliers based on qualitative capabilities and pricing competitiveness, requesting samples and conducting tests or qualifications, inspection of the manufacturing operations, legal review and finalization of the contract and follow-up quarterly review as part of the relationship management process.