effective supplier relationship management
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©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Effective Supplier Relationship Management
Peter Smith October 2nd 2013
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Part 1 – Introduction
The Real World Sourcing Series is a series of sessions covering hot topics for procurement professionals.
The Real World Sourcing Series is promoted and supported by BravoSolution, and developed by Peter Smith (Spend Matters) and Guy Allen (Real World Sourcing Limited).
Peter Smith started his procurement career with Mars Confectionery, then was CPO for Dun & Bradstreet Europe, the Department of Social Security and the NatWest Group. He is now a consultant, author, non-executive director and editor of the Spend Matters website. He was President of CIPS in 2002/3.
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Agenda 1. What is Supplier Management?
2. Why Is It Important?
3. In Depth Look at a Real SRM Programme
4. Some Other Case Studies
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Contract Management is maximizing the returns achieved from individual contracts you have with Suppliers.
Supplier Management is everything you do with suppliers and in your supply market, not related to a specific contract
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Planning
&
ownership
Market
management
SRM
Supplier
development
Contract
development
Payment Risk
Delivery
Administration
Resources
GOOD
PRACTICE
Relationships
Contract and Supplier
Management
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Planning
&
ownership
Market
management
SRM
Supplier
development
Contract
development
Payment Risk
Delivery
Administration
Resources
GOOD
PRACTICE
Relationships
Supplier
Management Good Supplier
Management Will Cover These
Aspects
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Supplier Contract
Understand internal
requirements &
stakeholders
Stage 1
Define scope and category
structure
Stage 2
Understand market and
suppliers
Stage 3
Develop category
strategy and plan
Stage 4
Select supplier(s)
Stage 5
Implement contracts
Stage 6
Contract and supplier
management
Stage 7
Develop, implement and embed category management
Iterative process
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Supplier Contract 1
Time
Year 2 Year 1 Year 3 Year 4
Supplier Contract 1
Supplier Contract 3
Supplier Contract 2
Supplier Management
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Why is it important?
Efficiency
Risk
Opportunity
Supplier Motivation
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
‘Companies Don’t Compete, Supply Chains Do’
Bob Monzcka
Michigan State University
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Task 1
Who should own the relationship with a key supplier?
Is it procurement? Discuss....
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
12
CEO
Alliances Manager
Operations Director
Finance Director
Solution Architect
IT Director
Purchasing
Service Delivery
Supplier
Commercial Director
No single right answer BUT
relationships need to be managed and roles
defined
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Key Components of A Successful Supplier Management Programme
• Leadership
• Clear Objectives
• Key Stakeholder Support
• Tenacity and Commitment
• Willingness to Engage in a 2 Way Dialogue
• Communication
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
14
© Fujitsu Services 2006 Moving Procurement Forward 15
Fujitsu
• Design, build and manage clients’ IT systems: Applications
Datacentres
Networks
Workgroups
• Provide, develop and improve client’s Business Processes HR
Procurement
Data Capture and Print Management
Document Management
• Through a choice of relationships: Consultancy
IT Projects
Managed Services
Outsourcing
• Where the role is: Prime Integrator
Partner
IT Sub-contractor
• In chosen markets:
Central Government & Defence
Local Government & Health
Private sector
• Throughout Europe & the World
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Fujitsu – Situation 2006
• Dedicated Supplier Relationship Managers
• Unmeasured
• Disconnected from the rest of Procurement
• Managers going native with Suppliers
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
The Case for Change
• Real sense that not leveraging the market
• Suppliers were dividing and conquering
• Competitors seemed to do it better than Fujitsu
• Identified opportunity to drive mutual benefit
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Supplier Management Programme Year 1
• Programme launch
• Segmentation of supply base
• Basic measurement consolidated
• Internal supplier satisfaction surveys
• Comparison of performance across sectors and accounts
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Supplier Management Programme - Scoring Mechanism
Corporate Social
Responsibility Assessment
Finance / Commercial assessment
35%
Business Continuity
Assessment
Weighted Scorecard Average
40%
Profiler 25%
Final Score > 80%?
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
The rest
Premier Suppliers
Partners
Tier 1 Suppliers
Tier 2
Tier 3
Strategic
Alliances
2-6
15-30
15-30
200
* Premier suppliers are those that are scorecarded and eligible to participate in the Supplier Management Programme with the prospect of FS Gold Accreditation. The candidate
suppliers are selected by the cross company Supplier Relationship Management Board.
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Supplier Management Programme Year 2 • Supplier Relationship Management Board Launched
• Representatives from all functions
• Clear decision making authority and responsibilities
• SRMB Met Four times a Year • Meeting 1 – Agreed Premiers Suppliers, Agreed Key factors
• Meeting 2 – Monitored On-going Performance of Suppliers
• Meeting 3 – Identify ‘failing’ suppliers and agree action plan
• Meeting 4 – Agree Suppliers that will be awarded ‘Gold’ status for next year
• Supplier Awards • All Suppliers achieving Gold invited to Awards Dinner
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Supplier Management Programme Year 3
Supplier ‘Rewards’ • Internal Publicity • Quarterly Briefings • Access to Key Decision
Makers • Opportunity to demonstrate
capabilities to key decision makers
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Outcomes • Brought Procurement firmly into the relationship
• Gave a platform from which to talk about poor performance (and a consequence for failing to address it)
• Introduced performance competition amongst suppliers
• Suppliers responded to the Programme – made the Supplier Account Directors heroes
• Fantastic exposure for Procurement
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Nokia - 3rd Party Supplier failure
• Supplier incident in Albuquerque,
New Mexico.
• Nokia and Ericsson both were supplied from the factory
• Owned and operated by Philips
• Caused the flow of chips to suddenly stop
• With mobile phone sales booming around the world, neither Nokia or Ericsson could afford to wait!
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Ericsson
• Cost to Group estimated at $400 million
• Market share fell 3% to 9% of market
• Withdrew from Handset market January 2001, outsourcing business to Flexitron in Singapore. (Loss making handset division later re-formed as new joint venture Sony-Ericsson in Oct 2001)
• Jan 01 - share price 50% below price at time of fire
Nokia • Production targets met • Market share increased by 3% to 30% (exactly Ericsson’s share) • Jan 01 - share price 15% below price at time of fire
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
• Rexam manufacture 54 billion drink cans a year • Their Supplier Management Programme has run
for 10 years • Primarily focused on improving quality and
developing supplier capability • Full support of senior management including CEO
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Outcomes
• Shared enthusiasm with Supply Base • Shared innovation programmes • Suppliers seen as an enabler to Rexam’s
move into value add products • 83% improvement in quality over 10 years
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Task 2
Below are some recent supply chain issues. How could better Supplier Management have mitigated or avoided these situations:
• Horsemeat in consumer food products • Cost over-runs for the winter Olympics in Russia • Or alternatively think of an issue in your own
organization
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Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Final Thoughts
• Procurement cannot own the relationship, but they can help to structure it
• It takes leadership, communication, a clear set of objectives, and tenacity
• One size does not fit all • A successful programme delivers benefits for
your organization and will be a great platform for Procurement recognition
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
Real World Sourcing Scholarship
• 10,000AED towards any procurement based training
• Go to www.strategicsourcing.ae with the URL you will receive tomorrow by email
• Complete the quiz programme
• Answer as many questions right as possible
• The winner will be announced at the end of the series!
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
Effective Supplier Relationship Management
THANK YOU!
Please feel free to contact psmith@spendmatters.com or
guyallen@realworldsourcing.com
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