Vendor Performance a Continuing Problem as Economy Grows

Although the economy is not growing rapidly, some companies are anticipating strong growth and recognizing the challenges that growth can present. Yes, growth is not always easy. There can be challenges to financial resources, labor and the one we'll discuss today, vendor performance.

Vendor performance in the economic recovery was one of my "11 Business Challenges for 2011." It will continue to be a challenge for some companies in 2012.

Boeing 737The Wall Street Journal carries a story today, "Boeing Examines Supply Chain for Weak Links" (probably gated, but you really ought to have a subscription). The aircraft company wants to ramp up production of its 737 by 60 percent over the coming three years. That's a big production increase, and Boeing wants to ensure that its vendors can deliver. Instead of simply placing orders and communicating production plans, Boeing is sending teams to evaluate each critical vendor's ability to deliver. This is great practice, similar to what Caterpillar did in the early days of the economic recovery. (See my article about Caterpillar and the "bullwhip effect.")

The Boeing story brings up an important point: the overall economy does not have to grow rapidly for a company to have vendor performance challenges. Boeing is enjoying strong orders for the 737. Some other companies are seeing their particular products in growing demand, even as the overall economy is growing only modestly. Your overall sales may even be falling, but if you have one key product that is enjoying strong demand, make sure you can get the parts you need to continue production.

The latest industrial production report from the Federal Reserve shows that overall industry increased output by 3.7 percent in the 12 months through November 2011. But look at the sectors with really strong growth:

Oil and gas drilling, up 21.2 %

Motor vehicles, up 15.6 %

Transit equipment, up 25.3 %

Even outside of these hot sectors, there are specific products with above-average demand.

What should you do? Here's a quick summary of my article, "Economic Recovery Hampered by Vendor Performance Problems: Four Steps for Companies with Supply Chain Challenges:"

1. Understand each vendor's ability to deliver parts reliably.

2. Look for alternative vendors when you identify a vendor who may not be able to deliver.

3. Evaluate the vendors who are not current problems to determine if they might become a problem.

4. Honestly talk to customers about the challenge.

Although I'm not a supply chain expert per se, I've been around this problem long enough that I can identify the steps you need to take to ensure your access to critical parts. Give me a call if you need support.