The 20th century philosopher, Yogi Berra observed, “You can sometimes see a lot just by looking.” Whether your task is a plant visit or due diligence audit, knowing the purpose, what to look for, and what to ask will produce better outcomes.
If the supplier is new to your organization, a primary goal is to validate claims made in sales presentations and proposals. If the supplier is already an incumbent, your task may be the annual renewal evaluation or a cost reduction negotiation. Whether a cross functional team or just one experienced purchasing manager conducts the visit, purchasing should always lead.
What to look for and where
If a supplier claims upgraded capacity, determine if the reason is personnel or equipment and demand a demonstration. Insist on speaking freely with employees. For instance, you may ask a machine operator in a one-on-one talk about how the new equipment works and how it contributes to increased production.
Go to the receiving dock. You will see names of suppliers and quantities of raw materials. Compare information received from cost analysis negotiations to what you observe on site. If credit or financial stability is a question, you’ll have the names of major suppliers to contact.
At the shipping dock, you’ll see the condition of finished goods, how shipments and are handled, efficiency and timeliness of order processing, etc. You’ll also have the names of other customers to contact about the supplier’s performance.
What to ask and why
Ask the sales staff how orders are received, entered, and queued for production/fulfillment. Are electronic notifications to customer available at every step or in the process or is your order somewhere in a mound of paper?
Your list of questions should be specific about business transactions, while others should be more open ended. For instance, ask about the churn rate or employee turn over and the duration that has management been with the company. Sign a confidentiality agreement approved by your lawyer so you may peruse their financial statements and business plan. Ask the line employees about morale. Raise and resolve any concerns uncovered in your visit with management. The supplier will respect your thoroughness and you may well minimize any festering problems that might otherwise erupt later.
Ask the supplier how you can be a better customer
Expect the standard responses of more orders and quicker payments but the supplier’s suggestions may surprise you. For instance, one supplier explained that the customer’s policy of not receiving deliveries after 3 PM caused unnecessary expense of demurrage and lost driver productivity that added a few percentage points of cost to a thin margin product. The obvious solution was to make an exception for this partner supplier.
Packaging, handling, shipping, electronic means, and all other costs are on the table. Seize the opportunity to explore how to mutually reduce costs. You are on their turf, so they may more comfortable and give you productive, useful answers.
You may be treated like a visiting dignitary but your task is to reduce the cost of doing business and ensure mutual profitability for the long term.