Economic Recovery Hampered by Vendor Performance Problems: Four Steps for Companies with Supply Chain Challenges

The Wall Street Journal reports: "Supply Kinks Stall Trucks: Parts Scarcity Has Manufacturers Scrambling to Meet Rising Orders." I've heard of a non-truck manufacturer who is limited by his vendor's delivery of heavy castings. He has orders, but without the castings cannot produce. A few years ago he switched to a cheaper, offshore vendor. When his supplier finally makes his castings, they'll go onto a ship in Shanghai for the long cruise over to America.

Who would have thought that in this slugglish economy vendor performance problems would arise? Well, anyone who read my series, "11 Business Challenges in 2011." Number 7 was "Vendor Performance in the Economic Recovery."

Like most problems, this one is best addressed early, well before the problem actually arises. OK, that's not much help if you have the problem today. Just make a note to worry about it in the next downturn, before it's a problem.

Step One in addressing the problem is to understand it. Don't just accept the vendor's assurances that the parts will be shipped in four weeks. Evaluate the vendor's ability to actually perform on that promise. Meet with the vendor's management, not just the sale person, to understand the vendor's own limitations. Is it personnel, equipment, or raw materials? Understanding is the first step. Some problems you may be able to help with, especially financial issues. If the vendor is limited by working capital, offer to pay a deposit to speed up the vendor's cash flow. Consider paying for product in 10 days.

Step Two is to look for alternative vendors. You may have already done this. If the late vendor is a long-time partner, who has performed well in the past, then finding an alternative is a very big step. However, you should always know who your best alternatives are for critical parts.

Step Three is to evaluate the vendors who are not currently a problem, so that you understand whether another component will go on back-order.

Step Four is to honestly talk to your own customers about the issue. Many companies would rather deliver late than have a difficult conversation with a valued customer. However, I can pretty much guarantee that your customer would rather have the conversation than be surprised by your failure to deliver. So talk it through. You're more likely to get a sympathetic ear than find they've gone to a competitor. In any event, honesty now will build credibility for the day when you can deliver the order when the customer needs it.