As manufacturing firms outsource more parts and services to focus on their own core competencies, they increasingly expect their suppliers to deliver innovative and quality products on time and at a competitive cost. When a supplier is incapable of meeting these needs, a buyer has three alternatives: (1) bring the outsourced item in-house and produce it internally, (2) change to a more capable supplier, or (3) help improve the existing supplier’s capabilities.
All three strategies can work. The choice often depends on price, volume, or the strategic nature of the procured item. For low-value-added, nonstrategic commodities, the cost of changing to a new supplier is low, and switching may be the best option. At the other extreme, when an underperforming supplier provides an innovative product or process technology (that may be of sustainable long-term advantage to the buyer), the buyer may wish to protect this potential advantage and bring the work in-house by acquiring the supplier. In those cases that lie between these two extremes — and even at times including these extremes — the best option may be “supplier development.”
We define supplier development as any activity that a buyer undertakes to improve a supplier’s performance and/or capabilities to meet the buyer’s short-term or long-term supply needs. Buying firms use a variety of activities to improve supplier... To read the complete article, login or sign-up using the form below.
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