gaining competitive advantage through supplier collaboration and supplier relationship management
TRANSCRIPT
Q&A
Today’s Presenters
Gary NowackiCEOTraceGains
William “Bill” MichelsPresidentPresident ADR NA, ADR-ISM China, ISM Services Companies
Enhancing Value through Supplier Relationship Management
By William L. Michels,President, ADR NA
Presentation Agenda4 Key Points
The PACE Model
Supplier Performance
Supplier Relationships
Words of Wisdom
Four PointsPoint 1 The Food 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 4The future requires strategic positioning, collaboration and value extraction.
6
Model of Price and Cost EvolutionStage One
Price Drift
Stage Two
Price Down
Stage Three
Cost Down
Stage Four
Cost Out
Purchase Price
SupplierCost
© ADR NA7
Stage One
Price Drift
Stage Two
Price Down
Stage Three
Cost Down
Stage Four
Cost Out
Purchase Price
SupplierCost
Model of Price and Cost Development
Gaining
Tactical Control
Increasingly effective segmentation & appropriate relationship strategies
© ADR NA8
Stage One
Price Drift
Stage Two
Price Down
Stage Three
Cost Down
Stage Four
Cost Out
Purchase Price
SupplierCost
Using Appropriate Techniques
Senior/Cross-functional
Functional Operational
StrategicTactical Techniques Involved
Management Effort
© ADR NA9
CompetitionTacticalRelationship Cost
Gainsharing
StrategicRelationship
StrategicRationalization
Tactical Rationalization Breakout
Incentivization
Summary of the FeaturesStages in the Price/Cost Model
Price Drift Price Down Cost Down Cost Out
Stages in the Price/Cost Model Adversarial Competitive Collaborative Integrated
Supplier’s cost structure Unknown Challenged Transparent Negotiated
Pricing mechanism with supplier
Opportunistic/ Market
Competition/ Threat
Cost/Principled Target
Supply market/ cost understanding
of buyerLittle or none Basic Developing Expert
Supplier’s margin Not managed Under pressure Challenged Agreed
© ADR NA10
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
Valu
e
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
Valu
e
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
Valu
e
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
Valu
e
Without effective Supplier Management most of the potential value available from strategic sourcing
can/will be lost within 6 - 18 months
Customer of ChoiceA 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 BewProcurement Strategy CouncilCorporate 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 BewProcurement Strategy CouncilCorporate 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”?
BusinessAlliances
Preferred Suppliers
ClosenessOf
Relationship
TIME(resources required & expected duration of relationship)
PerformancePartnerships
CompetitiveSuppliers
x x
x x
xxxx
x
x x
xx x x
x
x
xx
xx xx
x
x
Supplier Relationship TypesIdentify 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
PerformancePartnerships
PreferredSuppliers
BusinessAlliances
CompetitiveLeverage
x x
x x
x
x x
x x x
x
xx
xx
xxx x
x x x
Closenessof
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• 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)
GapAnalysis
(diagnosis)
More effective relationship
management(delivery)
Relationship Mapping
Cont
ract
ing
and
Perf
orm
ance
Mea
sure
men
t
Continuous Improvement
Tool kit
ValueEnhancement
Tool kit
Supplier Matching
Portfolio Analysis
SupplierPreference 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 OftenIntrude
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
RealRelationship
Contracted Choice
ExclusivityDurationMutuality
A partner is chosen and others are excluded
Coordinated Co-working
Co-ordinationCloseness
Shared risk and reward
Partners work together harmoniously
Creative Collaboration
CreativitySignificance
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 ProcessBuyer/Supplier
Daily Operations
Performance Information Collection:
• IT Systems• Human interaction
Supplier ScorecardAction Item Register
Top-to-Top ReviewsOperational Reviews
Day-to-Day Interaction
Top-to-TopReviews
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
LegalR & D
Supplier
“Sea” of communication
INCREMENTAL TOTALVALUE
ENDORSEMENTS
GROWTH
LOWER COSTOF DOINGBUSINESS
TRANSPARENCY&
HONESTY
LESSBUREAUCRACY
INNOVATION
COMPETITIVEADVANTAGE
SUSTAINABLERELATIONSHIPS
SPE PROGRAM
Misalignment in Relationships
Organizational
ResourceIssues
MeasurementToolsPersonal
Clash
Vision&
Direction
Capabilities&
Competence
ConflictingObjectives
IndividualBehavior
Poorly Performing
Relationship
Causes of MisalignmentVision
&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
ResourceIssues
Imbalance between parties–either way
Lack of availability
Timing
MeasurementTools
Inappropriate or out of date measures
Lack of review or actions
Functional perspective—feedback impersonal
Causes of MisalignmentPersonal
Clash
Clash of personalities or individuals
Historical or incompatible
Educate or eliminate
ConflictingObjectives
Maybe personal, functional or divisional
Lack of understanding of priorities
Capabilities&
CompetenciesPoor choice of team members
Lack of training
Lack of adequate recruitment
IndividualBehavior
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 andKnowledge
Source:Robert Handfield, DirectorSupply Chain Resource Consortium (SCRC)
Supplier Relationship Management
• “Our suppliers are only as good as we let them be.”
—David W. Johnson, President, Entenmanns Bakeries, June 1966
35
Barrier 1Organization goal
alignment
Barrier 2Selecting the right
supplier
Barrier 3Internal collaboration
GOAL Barrier 4Identifying incremental
value
OUR PATH
The SRM Journey
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