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Five Ways to Manage Niche Suppliers in Your Supply Chain

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We have discussed quite a few topics on core supplier management, although probably less than twenty percent of your suppliers fall under this category.

We will now look at suppliers at the other end of the spectrum. These suppliers are dealt with for specific projects or customers and - by a large extent - random or ‘niche’ suppliers.

Niche suppliers offer products that satisfy specific market needs and such needs, while they do not generate economies of scale, also cannot be overlooked. Niche suppliers, as regarded by your company, likely fall into the following situations:

  • Suppliers that manufacture or distribute products you do not require on a regular basis. If such products compete with mainstream products you would otherwise purchase frequently, such suppliers can have potential for replacing a core supplier. Otherwise, if products received from a supplier do have potential to replace or compete with mainstream products, the supplier could be considered an ‘emerging supplier’.
  • Suppliers that manufacture or distribute products you need for specific customers or in a specific region of the globe across the supply chain
  • Suppliers that provide you product or services for a specific project, such as a special government engagement or if a need arises from particular types of relationship requirements with your customers.

However, before adding a supplier to your approved vendor list (AVL), even for just one deal, you should analyze your vendor approval criteria, taking such factors as company entity information review; financial review, and industry standards compliance review into consideration.

Remember to stick to your criteria and remain steadfast when evaluating the niche supplier’s credentials and capabilities. By doing so, you will generate enough confidence, or lack thereof, and knowledge on this supplier to mitigate any risks you may face during the project delivery. This will also help you to design a better risk reduction plan in advance before any real difficulties surface in your supply chain.

You will then be able to add this niche supplier to your AVL and engage accordingly with each company’s individual compliance with your minimum requirements.

At this time specific customer, project and / or country needs are each satisfied.

But, what does the future hold? It is important your company has long-term plans in store for each supplier on your AVL, including niche suppliers.

One plan could be as simple as ‘blocking the supplier once the deal is completed’ with niche suppliers you do not foresee as future business partners following the initial engagement.

However, for other niche suppliers, while you may not deal with them frequently throughout a year’s time, you may have to deal with such suppliers twice a year and for others, perhaps once every two years or even longer.

The point becomes a matter of looking into niche suppliers on a case-by-case basis to draft your plans with each and determining their individual destinies on your AVL.

For your niche suppliers happy to work directly with your core suppliers, you can also consider asking your core suppliers to manage these niche suppliers for you and for the core supplier to ‘pass through’ deal details on to you.

By doing this, you create opportunities to leverage your core suppliers’ networks and you also increase your power to achieve better pricing from niche suppliers. However, in doing so, you must to pay close attention to the following aspects for this type of engagement during execution, as listed below:

1.     Your core supplier must not simply act as an extension or liaison of the niche supplier on your AVL by just passing through payments to you. Your core supplier must take responsibility for overall products or services quality and contract execution. In the other words, your core supplier should be accountable on any issue that occurs as if they are providing the product or services directly to you.

2.     Regardless of whether the products or services are complex, does your core supplier have the internal knowledge necessary to properly execute? (This is an extension of item 1) For products and services that may seem to be too complex, even though your core supplier claim to be happy to manage these for you, you must be crystal clear with core suppliers about any potential risks that could surface and impact your supply chain due to inaccurate or ill-defined technical and /or commercial communications and understanding between core and niche suppliers.

3.     From a service level agreement perspective, you should design appropriate contracts with your core suppliers that strictly define responsibilities and obligations. Take sub-tier relationships into consideration and have contracts in place that are both conceptually and practically beneficial.

4.     Be patient and understand that it can take time for your niche and core suppliers to work well with each other. Give them each support as necessary to make your supply chain efficient and smooth.

5.     Actively participate in, and contribute to, niche and core relationships, taking actions to drive down extra costs (e.g., markup) presented to you. Plan for your internal company needs in advance and communicate with your niche suppliers effectively. Help them to understand the arrangement is to benefit all parties involved while focusing on eliminating extra management cost.

Provided all the above items can be achieved, you can then proceed with actions to remove the niche supplier from your AVL while still keeping your supply chain capable of meeting future business requirements.

For niche suppliers you do not have to deal with directly following initial evaluation, keep them while maintaining frank and open relationships with them.

Designing your business model to drive down costs from the relationship is critical.