competitiveness. To achieve these objectives a company must first determine its current and future capability, technology, and capacity needs, map them against its current capabilities, and then assess whether the resulting gaps can best be filled through internal development, acquisitions, or outside suppliers.

If the decision is made to use outside suppliers, the next step involves a worldwide search for competitive suppliers based on the identified capability needs. Company needs should be mapped against the capabilities of potential suppliers. Performance metrics should be established at this stage as a means of assessing candidates and tracking future supplier performance. Suppliers should be carefully selected because the company's commitment, in many cases, will be to a long-term, intimate business relationship. Although some suppliers are selected over other qualified suppliers based on the need to fill government-mandated quotas, most are selected based on combinations of the following factors:

  • a track record of demonstrated cost competitiveness and on-time delivery

  • possession of proprietary capabilities

  • demonstrated management capabilities

  • customer support and logistics capabilities

  • in-depth quality performance

  • willingness to develop jointly seamless processes and eliminate non-value-added activities at the interfaces between customer and supplier

  • compatible corporate cultures

  • demonstrated financial strength and profitability

  • competitive technology and process capabilities

  • demonstrated compliance with government regulations

  • senior management interest in achieving a sustainable competitive advantage for the supply chain

  • willingness to share benefits achieved through supply chain integration

After the pool of potential suppliers has been reduced by a preliminary assessment, the remaining candidates should be subjected to in depth, on-site risk assessments conducted by a cross-functional team to identify strengths, weaknesses, and deficiencies. Following the final selection, a joint program should be initiated to solve supplier problems, eliminate deficiencies, and establish an open relationship that includes timely feedback and information sharing. This program should include ongoing, systematic supplier development and integration, including joint projects, training, inventory coordination, incentives, and penalties.

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