Why Your Supplier Does Not Want Improvements — and What to Do About It

You can lead a horse to water, but you can’t make it drink—a trite but true expression.

A trite but true expression. It is a scenario our clients often find themselves in. We assist their suppliers in making the manufacturing changes necessary to become world‑class manufacturers, yet those suppliers often reject the opportunity. The data is there, the plans are there, the client is willing to pay for the service, but the supplier says, “Thanks but no thanks.”

Why do they do that? At first glance, it seems ridiculous. Who would turn down free improvements that will allow them to be more profitable? Any rational businessperson would not turn down free money. Once you understand the psychology of these company leaders, it becomes clear why companies behave this way—and what you can do about it.

MTG has primarily observed these behaviors in China; however, they are by no means limited to that country. American, Canadian, and European companies do the same. Two of the most difficult companies we have worked with were Canadian and American. 

Three Reasons Suppliers Turn Down Assistance

• Do not want to share information with their customers

Chinese suppliers in particular do not like to share information with their customers. Many of them have experienced intense cost cutting pressure from their customers and do not want to share information so they can maximize their margins.

• Do not know enough manufacturing to understand the benefits.

It may seem strange that the head of a manufacturing company does not know much about manufacturing, yet this is quite common, especially in family‑owned or founder‑led businesses.
Company leaders may understand their industry or commercial operations well but lack a fundamental understanding of manufacturing itself. It is difficult to explain benefits to someone who does not fundamentally understand what you are talking about.

• Pride/fear.

It is often difficult to distinguish between pride and fear for these types of decisions. Company leadership does not want to be told that they do not know what they are doing—especially when they may already suspect it. There is a fear of losing control. More often than not this is because the owner/plant manager has too much control and micromanages operations.

Four Common Arguments

There are early signs that the process will be difficult even if the manufacturer agrees to start the improvements. Below are four common arguments you may hear before or during a project—each signaling an uphill battle.

• “All we need is more volume”

The manufacturer that says this cares only about revenue, not profit margin. In their mind, all problems can be solved through more volume.

• Belief that all improvements only add cost

A manufacturer that believes that the improvement only adds cost does not understand manufacturing and only sees immediate costs and not long-term improvements.

• “We are too busy”
  

All companies are busy. Often times it is because they do not have good systems in place to reduce the required frantic activity.

•  “We are already as efficient as possible” 

In most cases, this is simply not true. Very few operations are as efficient as they could be. There is always room for improvement. It is a case of a company that does not know what it does not know. They don’t know what right looks like so they cannot see what is wrong.

Do any of these statements sound familiar to you?

What You Can Do About It

Now that you know what to look for, how do you deal with it? Here are a couple of ways we have found to deal with the challenge of a stubborn manufacturer. Be warned, however—the process is never easy. Strong logic and good systems do not magically erode resistance from company leaders that do not want to be convinced. The proposals here need strong follow-up and resolve from you and your supplier. You should prioritize carrots over sticks.

• Full transparency for pricing

Set a reasonable profit margin for your supplier. Your purchase price will reflect the actual cost of goods sold. If the agreed-on profit margin is 30% and the cost per unit is $100, you will pay $130. If the unit cost decreases to $90, you will pay $117. The advantage of this method is that it allows for more honest dealing and sharing the gains (and pains).

• Clearly split benefits

Full transparency allows you to evenly divide the benefits of any improvements. For every $1 saved per unit, each party could receive $0.50. If you are paying for the improvements, it is reasonable to demand a larger share of the savings.

• Focus on quick wins to build confidence

All improvement plans should have quick wins to demonstrate how effective the improvements can be. The exact quick win will depend on the needs of the factory. For example, in a previous project, we were able to diagnose a problem with the factory’s welding. A quick change to the maintenance program saved the company hundreds of thousands of dollars. It is rare that the savings can be so extreme; however, it is not uncommon for projects to pay for themselves in a matter of months. The difficulty here is to avoid mission creep. As tempting as other tasks might be, stick to the quick wins.

• Hold off on additional volume until compliance

The biggest stick you have is to hold off on ordering additional volume or make no additional purchases unless the manufacturer complies. We recommend using this approach primarily as an implied consequence rather than an explicit threat.

Are you struggling with your suppliers? Talk to us and we can help.

How MTG Can Help

Manufacturing Transformation Group has been helping manufacturers improve supplier performance across China, Vietnam, Mexico, and North America since 2012. We've worked inside hundreds of factories — building quality systems, implementing lean processes, and getting reluctant suppliers to change.

If your suppliers are resisting improvement, we can help you build the business case, structure the engagement, and deliver results on the factory floor — even when the supplier doesn't think they need help.