chapter 41 chapter 8 supplier management and supplier development
Post on 22-Dec-2015
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TRANSCRIPT
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Preliminaries The goal of supplier management and
supplier development is a world-class supplier base
Supplier management involves Supplier Performance Measurement Supply Base Optimization Buyers accepting some responsibility for
supplier performance Supplier management is a pre-requisite to
Supplier development
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Preliminaries Supplier development is defined as a buyer
firm infusing Suggestions and ideas, and/or Human resources, and/or Training, and/or Financial capital, and/or Technology
into a supplier to Improve his capabilities Improve his performance
In order to meet the buyer firm’s short-term and long-term supply needs
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Supplier Evaluation (Ch 7) in comparison to Supplier Performance Measurement (Ch 8)
Supplier Evaluation is an event to Pre-qualify suppliers To award contracts To pursue improvement opportunities
Supplier Performance Measurement is a continuing process
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Supplier Performance Measurement
Cost reductions Quality performance Delivery performance Contract Deficiency Notices
(CDNs)
Quantitative Variables
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Supplier Performance Measurement
ETDBW Responsiveness Problem resolution ability New Product Development Support Technical ability Commitment to R&D Trust levels
Qualitative Variables
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Supplier Performance Measurement
Regular reports to the commodity buyer
Buyers meet with suppliers Carrots and Sticks
Reporting and using the information
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Categorical System
Performance Category
Score
E G F P
1. Meets Delivery Requirements
2. Customer focused
3. Fair pricing
4. Problem resolution capabilities
5. An innovative supplier
6. Communication and trust levels
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Cost Index: Quantifies total cost of doing business with a supplier
Price Purchase TotalCosts anceNonperform Price Purchase Total SPI
The Supplier Performance Index:
Nonperformance costs are generally per incident standard costs for late delivery, order shipped incomplete, quality problems and are based upon such things as rework costs, a line shutdown, lost customer sale, inspection and return costs, etc.
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Cost Index: Quantifies total cost of doing business with a supplier
2.1 SPI $15,000$3000 $15,000
The Supplier Performance Index example:
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Cost Index: Quantifies total cost of doing business with a supplier
2.1 SPI $15,000$3000 $15,000
The Supplier Performance Index:
02.1 SPI $150,000$3000 $150,000
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Cost Index: Quantifies total cost of doing business with a supplier
Price Purchase Total
X Costs anceNonperform Price Purchase Total Q SPI
The Supplier Performance Index with the Q adjustment:
Where Q is
suppliers allfor material oflot a of Price Averagesupplier for this materialfor lot a of Price Average
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Cost Index: Let’s adjust with the Q assuming $150,000 is the average price of a lot from all suppliers
2.1 SPI $15,000$3000 $15,000
The Supplier Performance Index:
02.1 SPI $150,000$3000 $150,000
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Cost Index: Let’s adjust with the Q = $15,000/$150,000 = .10
02.1 SPI $15,000.10 X $3000 $15,000
The Supplier Performance Index:
02.1 SPI $150,000$3000 $150,000
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Supply Base Optimization
Rationalizing versus Optimizing Implementation: First phase is to
eliminate marginal and perhaps very low volume suppliers
“Optimization” is a continuous process
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Advantages of an optimized Supply Base Reduced cost Having a World-Class Supply Base
Suppliers that generate fewer problems
Buyers re-direct their time to value-adding activities
Access to suppliers’ engineering, design and other capabilities
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Risks of a reduced supplier base
Absence of competition may generate complacency and price increases
Risk of supply disruption
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Formal Approaches to Supply Base Reduction The Pareto Rule (20/80) “Improve or Else” Triage Approach Competency Stair Case Approach
Stair Case Example
Step 1. Internal Information and Management Processes
Step 2. Quality Standards
Step 3. Production Capabilities
Step 4. Logistics Performance
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Supplier DevelopmentSupplier development is defined as a buyer
firm infusing Suggestions and ideas, and/or Human resources, and/or Training, and/or Financial capital, and/or Technology
Into a supplier to Improve his capabilities Improve his performance
In order to meet the buyer firm’s short-term and long-term supply needs
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Supplier DevelopmentStep 1. Identify candidates for
supplier development Is the supplier essential? Or Does this supplier meet minimum
requirements and show great potential?
AND Is this product or service a source or
potential source for competitive advantage?
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Supplier DevelopmentStep 2. Form a CFTStep 3. Meet with supplier’s top
management Discuss your supplier development
plan Seek a commitment on Kaizen Sense if “alignment” and trust
develop
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Supplier DevelopmentStep 3. Meet with supplier’s top
management (continued) Talk about resource
commitments, roles of each party and potential rewards
Develop agreement on specific measures that will indicate success
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Why Supplier Development? Suppliers’ capabilities are not high
enough to meet current requirements or future expectations Switching costs may be high Supplier has great potential
Joint efforts may accelerate supplier improvement
Mutual benefits
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Example of Supplier Development Results
Criteria
Before Supplier Development
After Supplier Development
Incoming defects
11.65 %
5.45 %
% on-time delivery
79.85 %
91.02 %
Cycle time (from order placement to receipt, inclusively)
35.74 days
23.44 days
% orders received complete
85.47 %
93.33 %
527 firms surveyed
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The Major Obstacles to Supplier Development Too overwhelming
Solution: Dichotomize, standardize, rationalize Lack of senior executive support
Solution: Demonstrate the potential gains Issues of trust
Solution: Nondisclosure agreements, exclusivity agreements, ombudsmen
Supplier doesn’t have the vision of the concept Solution: Supplier Evaluation Reports,
incentives, training sessions, designating Supplier Champions