Wednesday, July 23, 2008

Vendor Evaluation (or You Can't Know Everything)

I'm currently in the middle of a crisis. The lessons learned during this bit of trouble will certainly make me smarter, and hopefully, will help you avoid a similar situation in the future.

I've done business with a company for about three years. Let's call them SH -- it's representative of their company name, and also reminds me of a certain phrase, as in "went to SH*#!" I've done several projects with SH, and have been quite happy.

So why the trouble? I have a good process which I follow. I know much about SH. I've audited them, I've studied them, I know the owner and the key staff. How could it have gone wrong?

I don't know all the reasons why it went wrong. I do know that the technical director left, and not on great terms. That didn't seem like an immediate problem, as I knew the other department heads, and they seemed sound. I do know that some family members were being placed in key positions, but heck, I knew the owner, and he's a great guy, so no problem. Several other staff members left, but that's ok, SH is a good company, they can find new people. So my castings are running a bit late. Well, this is likely just a temporary problem.

Now I'm not claiming that this rapid company disintegration is a problem unique to China. With smaller US companies, changes in the upper echelon can have immediate and disastrous effect. In fact, one of my former employers went bankrupt soon after junior took the reigns from daddy. This can happen anywhere, but I've seen it happen twice in China, and it has happened both times with the departure of senior staff and replacement by family members who were completely incapable of performing the required job. Is that a sign to find a new vendor? It could be, but it's certainly a sign to pay more attention.

So what was my mistake? I certainly followed my process, and still things went bad! Here are my takeaways from this:

  1. Have a vendor management program and follow it. Even if informal, you should periodically re-audit, and track vendor performance.
  2. Dual source when possible. Due to complexity and volume, I couldn't practically dual source this part.
  3. Keep a list of qualified alternates in case you need to move quickly, and never stop hunting for new and better vendors. Does this mean don't build relationships with vendors? Absolutely not!! Just be prepared to move if things get bad -- I have a good relationship with this vendor, but not so good he's going to repay me for the money I'm going to lose!
  4. Don't be lazy!! If things start to smell bad, they're bad! I knew this company was starting to have troubles, it's just that it took so long to get this part qualified, and....
  5. Know who owns your moulds, if applicable, and don't be afraid to move them. Fortunately, I do own these moulds, and can move them to a new vendor.

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