enhancing value through supplier relationship management
DESCRIPTION
Bill Michels, President, ADR NATRANSCRIPT
Enhancing Value through Supplier Relationship Management
By
William L. Michels,
President, ADR NA
Presentation Agenda
4 Key Points
Managing for Value
Supplier Performance
Supplier Relationships
Words of Wisdom
Four Points
4
Point 1 Industry will continue to consolidate.
The result of supply chain consolidation will be competing dedicated chains.
Point 2
The leanest, most efficient supply chains will have competitive advantage.
Point 3
Point 4 The future requires strategic positioning, collaboration and value extraction.
What happens Next?
Contract Signed and Implemented—Price and Potential value benefits established
Price
Agreed Value Benefits
Unidentified Value Benefits
Strategic Sourcing…and Then?
Sourcing Phase Supplier Management Phase
Time
Va
lue
Strategic Sourcing in a Perfect World
Does this happen every time?
Sourcing Phase Supplier Management Phase
SRM Planning
SRM Visioning
Relationships Well-Aligned and Managed, Performing Well SRM
Implementation Strategies and
Toolkits
Time
Va
lue
Relationships Well-Aligned and Managed, Performing
Well
Relationships Poorly-Aligned and Managed, Performance
Drifting
Relationships Misaligned, Under-managed and Non-
Performing
Strategic Sourcing in the Real World
Sourcing Phase Supplier Management Phase
SRM Planning
SRM Visioning
Powerful Implementation
of SRM Strategies and Toolkits
Inadequate Implementation
of SRM Strategies and Toolkits
"Deal & Forget" Little Active
Management of Suppliers
Time
Va
lue
Relationships Well-Aligned and Managed, Performing
Well
Relationships Poorly-Aligned and Managed, Performance
Drifting
Relationships Misaligned, Under-managed and Non-
Performing
Strategic Sourcing in the Real World
Sourcing Phase Supplier Management Phase
SRM Planning
SRM Visioning
Powerful Implementation
of SRM Strategies and Toolkits
Inadequate Implementation
of SRM Strategies and Toolkits
"Deal & Forget" Little Active
Management of Suppliers
Time
Va
lue
Without effective Supplier Management most of the potential value available from strategic sourcing
can/will be lost within 6 - 18 months
Customer of Choice
A customer of choice is defined as a company that consistently receives competitive preference for scarce resources from a critical mass of suppliers.
—Robyn Bew, Procurement Strategy Council Corporate Executive Board
Consistency
• The supplier consistently addresses your organization’s needs ahead of those of other companies (perhaps including competitors).
Scarcity
• The resources in question–whether materials, services, new ideas, or supplier staff–are limited in availability.
Critical Mass
• Your company receives this type of preferential treatment from more than just the small handful of “strategic” suppliers.
• Provides the ability to secure support for a wide range of business needs.
How do you know if you’re a customer of choice?
Robyn Bew Procurement Strategy Council Corporate Executive Board
• 75% of suppliers say they regularly put most-preferred customers at the top of allocation lists for materials or services in short supply on a regular basis
• 82% say that these customers consistently get first access to new product or service ideas and technologies
• 87% of suppliers offer unique cost reduction opportunities to their most-preferred customers first
Sizing the Opportunity
• Start by looking at yourself as suppliers do • Use interactions with suppliers as an opportunity to uncover
“hidden” decision criteria
• Being a customer of choice is as much about selling as it is about buying
• Low cost-to-serve customers are as attractive to suppliers as low-cost suppliers are to buyers
Becoming a Customer of
Choice
Customer of Choice
Robyn Bew Procurement Strategy Council Corporate Executive Board
Identify the “baseline”
relationship and set goals for
improved return on investment
To establish where the real
relationship differs from the
“nominal” relationship.
To shift power in the relationship
To address any gaps in the
relationship
Why Have Relationship Improvement “Tools”?
Business Alliances
Preferred Suppliers
Closeness Of
Relationship
TIME (resources required & expected duration of relationship)
Performance Partnerships
Competitive Suppliers
x x
x x
x x x x
x
x x
x x
x x x
x
x x
xx x x
x
x
Supplier Relationship Types
Identify and invest in the appropriate relationship
Key Features
Performance Partnerships
Business Alliances
• Single/dual sourcing • Joint Focus on Cost and
Quality • Managed Risk • Technology Sharing • Key Performance
Indicators (KPIs) • Balanced Scorecard
• Single Sourcing • Dedicated Resources • Mutual Dependency • Shared Risk • Joint R & D • Exclusive Rights • Communication Plan • Transparent Metrics
Preferred Suppliers Competitive
Suppliers
• Fewer evaluated sources • Short Term Agreements • Regular Benchmarking of
Cost
• Multiple Sources • Frequent Negotiations • Arms length Relationship • Price Change
Measurement
Performance Partnerships
Preferred Suppliers
Business Alliances
Competitive Leverage
x x
x x
x
x x
x x x
x
x x
x x
x
xx x
x x x
Closeness of
Relationship
Close
Distant
Mapping Relationship Closeness
Tactical Tools • Tactical cost management
(interrogating cost breakdowns)
• Link continued business to KPI metrics
• Performance reward to drive compliance to specification
• Customer-driven market testing with unpredictable competition
• Price benchmarking and price guarantees
• Action Plans
• Operational Reviews
Strategic Tools
• Strategic cost management (transparent business model)
• Link joint marketing to KPI metrics
• Incentives for meeting stretch targets
• Supplier-driven market testing to derive sources of advantage
• Joint problem solving using DMAIC
• Market/Customer Reviews
Typical Approaches
Supplier Management Process
‘Hard’ Relationship Attributes
‘Soft’ Relationship Attributes
Perspectives & attitudes of individuals
(subjective view) ‘Best Fit’
relationship (vision)
An Organizational perspective
(objective view)
Gap Analysis
(diagnosis)
More effective relationship
management (delivery)
Relationship Mapping
Co
ntr
act
ing
and
Pe
rfo
rman
ce M
eas
ure
me
nt
Continuous Improvement
Tool kit
Value Enhancement
Tool kit
Supplier Matching
Portfolio Analysis
Supplier Preference Relationship Needs
Analysis
Using Competition and Negotiation to
maximize value delivery
Generic Phase. Steps applied to entire Supply Base to select appropriate Relationship Model
Specific Phase. Steps applied to appropriate segments of Supply Base (example above is Strategic
Preferred
Competitive
Performance Partnership
Business Alliance
“Hard” Relationship Attributes
Competitive Key Performance Alliance
Sources Many Limited One Single
Dependency None Reduced Managed Reliance
Goals Unknown Conflicting Different, but Known Mutual
Organization Separate Accommodated Dedicated Integrated
Change Management Re-source SLA KPI Continuous Improvement
Review Process Fire fighting Measured Driven Open
Performance Measurement
Not considered Accommodated Compatible Empathizes
Rewards Contested Divided Maximized Grown
Dispute Resolution Imposed Contractual Principled Principled
Tactical Strategic
“Soft” Relationship Attributes
Competitive Key Performance Alliance
Expected Continuity None Short to Medium Long Permanent/very Long
Trust None Sufficient High Complete
Management Attitude Exploitative Positive Compatible Driven
Competence Not considered Accommodated Developing Investment
Personal Relationships Often
Intrude Sometimes Considered
Developing Core Competence
People Not considered Selected Team Common
Culture Not considered Accommodated Compatible Empathizes
Communications Arms Length Managed Driven Open
Owner Contested Buyer Joint Mutual
Tactical Strategic
• Remember to always consider the balance of power
• Power will drive relationship dynamics such as commitment, value-congruence and trust
What is the "Real” Relationship?
Nominal
Relationship
Real
Relationship
Contracted Choice
Exclusivity
Duration
Mutuality
A partner is chosen and others are excluded
Coordinated Co-working
Co-ordination
Closeness Shared risk and
reward
Partners work together harmoniously
Creative Collaboration
Creativity
Significance
Synergy
Partners create something new out of their
interaction
Who Has the Power Here?
Temporary Trust
Equality (Equivalence)
Symmetry
Trust
One party drives the partnership and requires
consent
5 Step Supplier Management Process
Buyer/Supplier
Daily Operations
Performance Information Collection:
• IT Systems
• Human interaction
Supplier Scorecard Action Item Register
Top-to-Top Reviews
Operational Reviews
Day-to-Day Interaction
Top-to-Top
Reviews
Operational & Management Team Reviews
Day-to-Day Interaction &
Execution
Top-to-Top Review Objectives
Conduct high level business and performance reviews
Reinforce/support relationship objectives
Discuss escalated issues from management team
Monitor key new product development
Operational Review Objectives
Monitor performance vs. scorecard
Manage cost/value improvement efforts
Resolve issues escalated from day to day
Benchmark supplier to market
Lead supplier development efforts
Track benefits received from agreement
Day-to-Day Objectives
Place/coordinate orders
Manage product/service flow
Collect performance data
Escalate issues
Supplier Management Model
• Agree procurement “owns” supplier relationship
• Agree category objectives & supplier management strategy
• Develop supplier communication strategy
• Provide stakeholders supplier conditioning training
• Proactively manage communications to ensure appropriate stakeholders “in the loop” and “on message”
• Educate stakeholders on importance of supplier communication management & discipline
Managing Internal Supplier Communication
Manufacturing
Strategic
Planning
Finance
Procurement
Supply Chain Quality
Legal R & D
Supplier
“Sea” of communication
INCREMENTAL TOTAL VALUE
ENDORSEMENTS
GROWTH
LOWER COST OF DOING BUSINESS
TRANSPARENCY &
HONESTY
LESS BUREAUCRACY
INNOVATION
COMPETITIVE ADVANTAGE
SUSTAINABLE RELATIONSHIPS
SPE PROGRAM
Misalignment in Relationships
Organizational
Resource Issues
Measurement Tools Personal
Clash
Vision &
Direction
Capabilities &
Competence
Conflicting Objectives
Individual Behavior
Poorly Performing
Relationship
Causes of Misalignment
Vision &
Direction Organizations have differing goals
Future Investment not forthcoming
Priority given to other customer’s
Organizational
Organizationally—misfit, potential service conflicts
Poor communication to stakeholders
Lack of local interest—benefits accrue elsewhere
Resource Issues
Imbalance between parties–either way
Lack of availability
Timing
Measurement Tools
Inappropriate or out of date measures
Lack of review or actions
Functional perspective—feedback impersonal
Causes of Misalignment
Personal Clash
Clash of personalities or individuals
Historical or incompatible
Educate or eliminate
Conflicting Objectives
Maybe personal, functional or divisional
Lack of understanding of priorities
Capabilities &
Competencies Poor choice of team members
Lack of training
Lack of adequate recruitment
Individual Behavior
Inappropriate actions undermine progress
Inability to see the big picture
Blame culture
•Leadership, Decision-making, Influencing, Compromising
Team Building
•Project Scoping, Goal-Setting, and Execution
Strategic Planning Skills
•Presentation, Public Speaking, Listening and Writing
Interpersonal Communication Skills
•Web-enabled Research and Sourcing Analysis
Technical Skills
•Cost Accounting and Business Case Analysis
Financial Skills
•Ethics, Facilitation, Conflict Resolution, and Creative Problem Solving
Relationship Management Skills
•Contract Writing and Risk Mitigation in a Global Environment
Legal Issues
A Supply Manager’s Core Skills and Knowledge
Source:
Robert Handfield, Director
Supply Chain Resource Consortium (SCRC)
Supplier Relationship Management
• “Our suppliers are only as good as we let them be.”
29
—David W. Johnson, President, Entenmanns Bakeries, June 1966
Barrier 1
Organization goal alignment
Barrier 2 Selecting the right
supplier
Barrier 3 Internal collaboration
GOAL Barrier 4 Identifying incremental
value
OUR PATH
The SRM Journey