Constraint Management & Supplier Relations
If your business suffers from . . .
- Long supplier lead-times
- Incoming quality problems
- Late or unreliable raw material or purchased part deliveries
- Raw material shortages
- Poor quality
. . . then chances are good that your constraint is in the supply chain that you rely on and the policies and practices associated with your relationships with suppliers. The challenge is to get from your suppliers what you need from them to be effective, whether it's better delivery performance, quality, or other aspect of what they supply to you.
But suppliers are not in you sphere of direct control. Sometimes it feels as they are not even in your sphere of influence. Compared to their other customers, you might find yourself not at the center of their attention. When trying to get their attention -- when trying to become a "preferred customer -- you need to find a way to impact performance external to your operation and to your direct control. This is an example of trying to deal with a supplier as an external constraint.
The External Constraint
Many organizations want to significantly improve their bottom line performance, but can only do so by effectively addressing the external factors constraining their performance; external constraints such as insufficient market demand, poor supplier performance, or the unwillingness of the financial institutions to provide the necessary capital. In order to effectively address an external constraint, the organization must construct and present an offer that:
- Alleviates the impact of the external constraint on the organization's performance
- Provides the external constraint with significant, quantifiable bottom line benefits.
Such a win-win is what we call an "unrefusable offer." To construct and present such an offer requires that we create a shift in the way that our offer is valued by the external constraint: from one that is based almost solely on "price" -- where the other important elements of our offer are left virtually unquantified (the ones that can make or break the deal); to one that is based on "price related to bottom line benefits." Hence, one of the major elements to be addressed in providing an external constraint with an "unrefusable offer" is quantifying the value of the offer in terms of its impact on the external constraint's bottom line.
Bottom line here doesn't necessarily mean Net Profit -- it might mean ROI, Inventory Turns, Cash Flow, or keeping within Budget. What's important in doing this is looking at the bottom line through the eyes of the external constraint and determining what it considers to be important. Quantifying the offer in this way enables the external constraint to value the organization's offer on the basis of the "bottom line benefits it gets for the price" rather than simply the "price."