strategy process slide 1 © the delos partnership 2005 supplier relationship management module 6 –...

Strategy Process Slide 1 © The Delos Partnership 2005

Supplier Relationship ManagementSupplier Relationship ManagementModule 6 – Supply Strategy

• Marketing & Sourcing Strategy• Leverage Opportunities• IP Management• Standardisation• e Commerce / e Auction


• Put together negotiation plans & channels.

• Ensure that the channel plans have been thoroughly prepared.

• Ensure a CDA is in place so that there is no market leakage of information.

• Analyse & evaluate completed RFQ’s

• Use/modify evaluation criteria

• Get key stakeholder input

• Discuss and develop needs and wants.

• Discuss and agree the different Negotiation roles & styles.

• Create the negotiation

team (never alone!! and typically 3-4 people)

• Decide on negotiation team roles.

• Supplier Selection

• Legal Supply and Service level agreement and Total value plan,

• Performance Measures

• Supplier and relationship management

• Communicate of results on a need to know basis.

Plan the Plan the Channels Channels

& new & new

AgreementAgreement

Plan the Plan the Channels Channels

& new & new

AgreementAgreement

DevelopDevelopNegotiation Negotiation

StrategyStrategy

DevelopDevelopNegotiation Negotiation

StrategyStrategy

Post Post NegotiationNegotiation

ActionsActions

Post Post NegotiationNegotiation

ActionsActions

DevelopDevelopNegotiationNegotiation

GoalsGoals

DevelopDevelopNegotiationNegotiation

GoalsGoals

Negotiate / Select the SuppliersNegotiate / Select the Suppliers

© The Delos Partnership 2005

Customer

Needs

Supply Side Value

Sourcing

Transactions

OrderPlacing

OrderNegotiation

Sourcing

Supplier RelationshipManagement

Sourcing Value AddSourcing Value Add


The Bow-Tie RelationshipThe Bow-Tie Relationship

Supplier Sales Person Buyer

Supplier

• Management• Sales• Marketing• Operations• R&D • Supply Chain • Procurement

Customer



The Diamond RelationshipThe Diamond Relationship



Key Account Management


Strategic FocusStrategic Focus

Relationship Management

Joint Development

Senior

Relationships

Joint Ventures

Supply Chain

Integration

Global AccountManagement

Customer

Service Joint Mark

eting


Leveragepower of suppliers

MarketLeverage

Threat ofNew

Suppliers

Substituteproducts

or services

Business

& Competitive Environment

Porter’s Five Competitive ForcesPorter’s Five Competitive Forces


Brand Management Brand Management

Marketing champion the brand, and determine product and price strategy.• Innovation pricing• Market skimming pricing strategy• Price elasticity [revenue versus volume]

Differentiated brands are premium priced – some relates to innovation cost.• Marketing preserve “brand equity”• Create Market segments – same product: different price

"Price is a function of perceived value and emotion". "Price is a function of perceived value and emotion". The heart is 50x more electrical and 1000x more The heart is 50x more electrical and 1000x more

electromagnetic than the brain. electromagnetic than the brain. (e.g. Coca Cola, Virgin)(e.g. Coca Cola, Virgin)

"Price is a function of perceived value and emotion". "Price is a function of perceived value and emotion". The heart is 50x more electrical and 1000x more The heart is 50x more electrical and 1000x more

electromagnetic than the brain. electromagnetic than the brain. (e.g. Coca Cola, Virgin)(e.g. Coca Cola, Virgin)


Sales Penetration & Exploitation Sales Penetration & Exploitation

• Look to exploit the lack of internal communication and integrated supplier strategies

• Gain knowledge through telesales and engaging the over-communicators.

• Penetrate poor security and easy site access

• Use switchboard, networks, direct calls to locate key influencers & decision makers

• Try to avoid Procurement involvement until as late as possible


Penetration & AccessPenetration & Access

Board & CEO

R&D EngineeringSales

& MarketingBusiness

DevelopmentQuality Business Centre

I.T. Legal Finance

Direct

into

funct

ional

Direct

into

funct

ional

head or team m

embers

head or team m

embers

Top DownTop Down

Bottom UpBottom Up

How can P

urchasin

g main

tain

How can P

urchasin

g main

tain

levera

ge giv

en wid

espre

ad

levera

ge giv

en wid

espre

ad

penetratio

n and a

ccess

?

penetratio

n and a

ccess

?


StrategicCritical

(Risk & Value)

Commoditisation & Leverage

ConflictSupplier tries toextract premium

pricing and controls

Conflict exploits

relationshipand tries to

commoditise a specialty

Leverage or Alignment?Leverage or Alignment?

PerfectAlignment


DOGS PROBLEM CHILDREN

CASH COWS STARS

PR

OD

UC

T V

OLU

ME

PR

OD

UC

T V

OLU

ME

PRODUCT PROFITPRODUCT PROFIT

Leveraging Product TypesLeveraging Product Types

KeyKeyLeverageLeverage

TypeType


TypeType

Strategy Process Slide 13 © The Delos Partnership 2005TIME (CAN BE MONTHS)TIME (CAN BE MONTHS)

0%

PR

OD

UC

T M

AR

KET S

HA

RE

PR

OD

UC

T M

AR

KET S

HA

RE

LAUNCHLAUNCH GROWTHGROWTH STAGNATIONSTAGNATION DECAYDECAY

1990’s1990’s

2000’s2000’s

50% INNOVATION INNOVATION

Leveraging Product Life Leveraging Product Life CyclesCycles


TimeTime


TimeTime


Leveraging the Supply SideLeveraging the Supply Side

Bargaining Power & LeverageBargaining Power & Leverage

Su

pp

ly S

ide V

alu

e d

elivery

(£)

Su

pp

ly S

ide V

alu

e d

elivery

(£)

• Standard Costing • Pricing, Market Structures & Agreements• Managing Supplier Procurement Costs • Collaborative vs. Confrontational Leverage• Supplier Development – Value Stream & Lean• Managing Supplier Development Plans• Supplier Performance Assessment


The Competitive Box

Known / Unknown suppliers operating in traditional

value add ways with the cosmetics

customer base and competing for market share

CustomersCustomers

Conventional valuepropositions

New New Supplier Supplier

New Business New Business ModelModel

SuperiSuperioror

valuevalue

SuperiSuperioror

valuevalue

Three ChoicesThree Choices


Intellectual Property ManagementIntellectual Property Management

• Adequate protection for Customer and Internal I.P. • Controlled supplier access to sensitive projects, parts

of the plant etc• CDA from the beginning• Joint Development Agreement with specifically named

project members• Joint Exploitation Agreement• Potential licence fees and royalty income from all joint

supplier inventions


This is the second customer who has talked to me about this great new product opportunity and shared their expert knowledge.I'll even try to get a photo of the product from them..,

This is the second customer who has talked to me about this great new product opportunity and shared their expert knowledge.I'll even try to get a photo of the product from them..,

I have a problem here in . Let me talk to you all about it, and what I am doing with other suppliers.



" I think I've got something that could really help . We've just invented it and filed for a patent...

" I think I've got something that could really help . We've just invented it and filed for a patent...

Patentin the name of thesupplier

Patentin the name of thesupplier

That’s really good; it is just

like we wanted. I did not realise

that you had got a patent on it

though ! Could I have a sample

and price?



They will pay top dollar for my product but I'll give a discount which they will value. There are other development projects I want to exploit

They will pay top dollar for my product but I'll give a discount which they will value. There are other development projects I want to exploit



Standardisation & RationalisationStandardisation & Rationalisation

Many companies suffer from the "cost of complexity" – historic specifications – obsolescent specifications.

This in turn can lead to expensive set-up costs


StandardisationStandardisation

• 80 % of the cost is built into the product at the design stage

• If designers do not build in commonality and standard products/components then costs increase


Specials vs. CommoditySpecials vs. Commodity

What you think is special may not be special

Suppliers will try and create “special” to extract value

Suppliers will try and sell to your people and force you to specify “special”

You try and create “commodities” but they will want “specials”


Current Supplier StrategyCurrent Supplier Strategy


““Negotiation” Choices Negotiation” Choices

• Over the phone

• Email

• Buy “On Line” – Sellers Catalogue

• Buy “On Line” – Buyers Catalogue

• E Commerce – Auctions, e Tenders, Portals

Indirect Channel

Direct Channel

OR

Face to Face – Negotiation


Negotiation – Negotiation – e e Commerce Commerce

e Commerce Definition

e – Tools

Tool Comparison table

Reverse Auction - Positives and Negatives

Logistics and Freight example


ee–Commerce Definitions –Commerce Definitions

• Use of the Internet, ERP or online tools in order to source products and services across global markets. market

• A Sourcing tactic, technique and tool and not a strategy

• Covers applications such as reverse auctions, electronic tenders and purchasing portals


Reverse Auctions• Live and interactive bidding online that makes use of ceiling prices & bid

increments so that business finally goes to the lowest bidder

Electronic Sourcing & Tenders • Uses the traditional tender process against an RFQ but makes use of

the Internet to manage projects and obtain quotations. Far more effective than traditional paper methods.

Portals• Internet / Intranet / Extranet site (portal) where user needs are

positioned and supplier bids & information is electronically managed as part of the Business Sourcing process.

ee-Tools -Tools


Market FactorMarket Factor Reverse Reverse AuctionAuction TenderTender NegotiationNegotiation

Supplier Relationship Leverage Strategic/Critical Critical

Supply Demand Balance Long Balanced Short

Type Commodity Speciality Special

Approvals Many Few One or Two

Globality Global Site to Global Regional

Large Business Turnover Widely Used Common Increasingly rare

Product Approval Easy Difficult Hard

Pricing Control Buyers Favour Neutral Sellers

e Tool Applications e Tool Applications


• Efficient (no lunch & lingo)

• Global Reach

• Aggressive bidding

• Transparent

• Transactionally efficient

e Auction – Positives e Auction – Positives


– Requires Preparation

– Can be Costly (ROI)

– Need to integrate / involve IT and ERP

– Education and training (Buyers and Suppliers)

– Set Up time (people, ceiling prices & communication timings, bid size decreases, lot sizes, auction duration & overtime periods, single or nested, visibility & transparency)

– Final Allocation of business (Goes to the lowest price bidder you may not like)

e Auction Negativese Auction Negatives


e Auction Providerse Auction Providers

- Procuri- Freemarkets (Ariba)- Trading Partners- Utilyx - PwC- JSI- E-Three- Hedgehog


Logistics and Freight (Sea, Road, Couriers) is a good category for reverse auctions.

• Overcapacity leading to constant downward price pressure

• Significant options to destinations

• Many well qualified suppliers

• Non Strategic Supplier relationships

• Easy to assemble specifications and benchmarks

Logistics Example Logistics Example


Questions ?Questions ?

strategy process slide 1 © the delos partnership 2005 supplier relationship management module 6 –...

Documents

supplier selectionlegal

supply sidestandard

procurement involvement

price strategy

negotiation team roles

total value plan

different price price

negotiation plans channels