effective supplier relationship management

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Spend Matters UK/Europe Real World Sourcing

Effective Supplier Relationship Management


Peter Smith October 2nd 2013




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.




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




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




Planning

&

ownership

Market

management

SRM

Supplier

development

Contract

development

Payment Risk

Delivery

Administration

Resources

GOOD

PRACTICE

Relationships

Contract and Supplier

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




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




Supplier Contract 1

Time

Year 2 Year 1 Year 3 Year 4

Supplier Contract 1

Supplier Contract 3

Supplier Contract 2

Supplier Management




Why is it important?

Efficiency

Risk

Opportunity

Supplier Motivation




‘Companies Don’t Compete, Supply Chains Do’

Bob Monzcka

Michigan State University




Task 1

Who should own the relationship with a key supplier?

Is it procurement? Discuss....




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




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




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




Fujitsu – Situation 2006

• Dedicated Supplier Relationship Managers

• Unmeasured

• Disconnected from the rest of Procurement

• Managers going native with Suppliers




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




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




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%?




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.




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




Supplier Management Programme Year 3

Supplier ‘Rewards’ • Internal Publicity • Quarterly Briefings • Access to Key Decision

Makers • Opportunity to demonstrate

capabilities to key decision makers




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




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!




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




• 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




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




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




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




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!




THANK YOU!

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