What is Supplier Development? | JAGGAER (2024)

What is Supplier Development?

Supplier development is working collaboratively with critical, strategic and high-potential suppliers to improve their capabilities and competitiveness in the areas of cost, quality, time and technology for the mutual benefit of both the customer and the supplier.

Supplier development can be systematic and strategic with the objective of improving the overall performance of a supplier or targeted toward improving specific supplier capabilities.

Supplier development goes beyond current contractual arrangements with suppliers. It can involve not only cost reduction and supplier quality improvement but can include collaborative product development involving both customer and supplier firms.

Supplier performance management (SPM) typically helps identify opportunities for improvement. Supplier development is the logical outcome of SPM – getting from performance management to performance improvement.

Simply put: A contract is getting what you pay for. Supplier development is improving what you pay for.

Why Should I Care About Supplier Development?

Some companies don’t think supplier development is necessary. They view it more as a vitamin than a painkiller.

But let’s take a look at global events to see if that’s a fair assessment.

Globalization has put financial pressure on supply chains.

Customers are asking suppliers to do more with less, while keeping costs down. Rising wages in low-cost countries and commodity volatility increase the operational and financial pressure on suppliers.

What used to be one assembly line in one factory has turned into ten factories in ten countries with multiple regulations and management styles.

This often leads to corner-cutting to meet customer demands and requirements as well as excessive overtime work instead of adding employees. Poor quality and financial instability are the typical result.

Supply chain risks have increased.

With far-flung supply chains, more supply chain complexity and more moving parts, there’s more opportunity for problems.

Culture differences can impact communications and suppliers’ urgency in how they react to customer demands.

Physical distance (out of sight/out of mind, transportation costs), communication difficulties, and intellectual property risks are some of the risks and challenges that offshoring have created.

Couple that with material and labor shortages, natural disasters and pandemics and you can see the real underlying issues.

Poor quality, late deliveries, bottlenecked supply chains and poor responsiveness can result and can have severe impacts on your operations.

Sustainability and green mean increased requirements for suppliers to adopt green and sustainable practices.

While finding new, green suppliers is an option, it’s not always practical. Working with current suppliers on sustainability may be a more realistic option for you.

For example, Knorr, a Unilever division, co-invests 1 million Euros with its suppliers and farmers in knowledge and equipment to accelerate the implementation of sustainable practices.

Another example is the chemical industry initiative, Together for Sustainability (TFS) which is creating standards, auditing suppliers against these standards, creating a database of audited suppliers for buyers of member companies, and initiating continuous improvement projects with suppliers.

Benefits of Supplier Development

Cost reduction

The pressures of reducing costs have made supplier development a key ingredient for successful cost reduction.

Demanding year-over-year cost reductions from suppliers may have only short-term benefit. Cost reductions at suppliers without real operational improvements are not sustainable and can increase supply risk.

Supplier development can help suppliers remove cost and waste from their businesses. In the case of offshore suppliers, investment of time and development resources in advance may be necessary to avoid risks and to gain genuine benefit from the promise of lower costs.

Many companies have found that offshore suppliers who underwent development beforehand performed much better than others who did not.

Quality and cycle time improvement

These are the classic reasons for and benefits of supplier development: to help a supplier to improve the quality of its products or services and also decrease cycle time and improve responsiveness to customers.

Quality and cycle time are also some of the biggest performance risk factors.

Increased business alignment

Working with suppliers on supplier development can help increase alignment, collaboration and trust. Sharing business strategies and goals for supplier development helps suppliers become more aware of and responsive to customer needs.

With better insight, understanding and increased trust, suppliers may bring new and/or innovative product and service ideas to the table that support customer needs and provide a competitive edge for both parties.

Get our proven supplier development framework here