January 2017 | Commentary | Viewpoint: Logistics & Supply Chain Analysis

Evaluate Partners Before You Sign the Contract

Tags: Global Logistics, Logistics, Supply Chain

Sven Thiesen, is Chief Operating Officer, OPTIS, 855-262-0770

In an increasingly competitive global environment, every element of the supply chain must be effective and efficient—to deliver the right quality products, on time and at the right price. Empowering your procurement team before supplier selection is key.

For companies that outsource materials, parts, and equipment, the potential for quality issues and hidden costs can be considerable. Engaging qualified personnel, or a qualified third party, during the outsourcing contract period or purchase order is vital.

Including subject matter experts—and extending the discussion beyond the purchasing department—can help overcome the tendency of companies to be overly dependent on contract writing. Manufacturers can focus on selecting a business relationship with the right supplier partner.

Conditions and requirements may change throughout the contract period. Being able to fine-tune, or make significant changes to attain or maintain quality and competitiveness, is important, and must be as close to real time as possible, to avoid adversely affecting supply chain timing requirements.

Keys to Outsourcing

Before the contract is signed, manufacturers should rigorously evaluate technical, supply dependability (including supplier skill and experience), and cost, especially if they're fully outsourcing a product. Cost evaluation includes providing a reasonable level of supplier profit. Deep discounts or bare bones pricing, which can place the supplier's business at risk, is not a win for either company.

During the supply period, qualified personnel must be involved on an ongoing basis. Technically and operationally qualified procedures, tools, and inspection methods are required to produce a quality outsourced item.

Too little engagement, or engagement by less than appropriately qualified people, can result in substandard quality. If too much purchasing company engagement is required, however, the cost of resources may not be reflected in the actual cost of the contract. This can result in a false belief that the outsourcing contract made financial sense but, in reality, the total cost is hidden.

Time zone differences can also result in scheduling issues and higher resource involvement, even if quality is not compromised. For instance, English may be the language of international management but may not be as common on the factory floor. Levels of worker turnover can be high, putting quality or schedules at risk.

In an OPTIS research report, a North American operations director revealed outsourcing did not compromise quality at his firm because supplier quality management and dedicated procedures are in place, including inspections and audits. A vice president of sales and marketing also interviewed in the report addressed the issue of local outsourcing, having both positive and negative experiences. Potentially the more touches of a part, the more chances for problems; and the shorter the timeline, the more challenging.

Sharing Common Goals

Aligning all parts of the supply chain to work toward a common set of objectives demands cooperation, communication, and a shared management of risk. Now more than ever, manufacturers are pressuring their suppliers to deliver quality products, on time, and at the right price.

Suppliers have to be lean, fast, and innovative to meet their clients' needs. To ensure they're capable of being exactly that, manufacturers need to bring in expertise across the whole business to ensure they get a strategic partner that can fortify the supply chain.






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