Eskom Procurement Book 2015

SUPPLIER RELATIONSHIP MANAGEMENT

5.6 SUPPLIER DEVELOPMENT Supplier development is a critical part of the supplier relationship management process, but there are times when the supplier fails to satisfy the requirements of the buying organisation. Under such circumstances, the buying organisation has three options, namely [13]: • Bring the outsourced item in-house and produce it internally (i.e., set up manufacturing facilities within the organisation); or acquire the supplier (vertical integration). • Re-source with a more capable supplier (supplier switching). • Help improve the existing supplier’s capabilities (supplier development). An activity that most firms have failed to pursue rigorously is the active development and improvement of supplier performance capabilities. Part of the reason for not pursuing supplier development activities relates to the confrontational nature that has characterised too many buyer-seller relationships. The term ‘supplier development’ has been defined from diverse angles by different scholars. It is the process of working with specific suppliers on a one- to-one basis in order to improve their performance for the benefit of the buying organisation [14]. It involves a long-term co-operative effort between a buying firm and its suppliers to upgrade the suppliers’ technical, quality, delivery, and cost capabilities and to foster ongoing improvements [15]. Also, it encompasses any effort of a buying firm with its supplier to increase the performance and/or capabilities of the supplier and meet the buying firm’s supply needs [16]. Supplier development is closely associated with supplier relationship management and partnering. In supplier development, the supplier’s expertise is embraced and aligned to the buying organisation’s business needs. Development efforts primarily fall into three categories: working with suppliers to resolve a problem (reactive); working with a supplier to continuously improve a performance capability (proactive); and working with a supplier to create a performance capability where none previously existed (proactive). Companies that pursue development activities should be aware of three best practices associated with supplier development. The first is that a central system should be established for controlling and monitoring the development efforts. This is done to ensure that development efforts are not diffused, uncoordinated, or under-reported. Second, development efforts should be set up as projects with widespread visibility throughout the organisation. This also allows the use of project management tools. Finally, supply managers should calculate the return-on-investment from their development efforts. This last point requires the active involvement of finance. The objectives for development can be comparatively minor, such as reducing staffing levels; or very significant, such as evaluating and re-launching an entire range of critical products. There are cases where the buying organisation fails to identify a top-notch supplier who is willing or able to meet its needs. Under

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