supplier mgt. slide 1 © the delos partnership 2005 supplier relationship management module 8 –...

Supplier Mgt. Slide 1 © The Delos Partnership 2005

Supplier Relationship Management Supplier Relationship Management Module 8 – Supplier Performance & Benefits Tracking

• Supply Measures • Supplier Management & Positioning• Top 10 Supplier Assessment Programme• SRM Workshop Agenda• Integrated Benefits Tracking


Supplier TypesSupplier TypesNo trust between supplier and buyer Closely guarded information on both sides

• Buyer dictates price and service parameters• Threat of pulling business

• Buyer views suppliers sales representative as friend• Rarely any professional negotiation

• Long rewarding relationship• Genuine commitment, but not tied to any specifics

• Small supplier gets paid what he needs to remain profitable

• Supplier is viewed as integral part of buyer’s business• Relationship includes technical, operational and sales

people• Supplier is viewed as resource to gain competitive

advantage• Long term commitment

Enemy Enemy

ExploitableExploitable

InformalInformal

Approved Approved

Nuisance - ParasiteNuisance - Parasite

Preferred SupplierPreferred Supplier

Strategic PartnerStrategic Partner


Supply & Procurement MeasuresSupply & Procurement Measures

Performance MeasurePerformance Measure Sales Profit Sales Profit and Growthand Growth

Cost of Cost of SalesSales

People People CostsCosts AssetsAssets InventoryInventory CreditorsCreditors

Perfect Customer Orders Lead Time Reduction RFTQ100%OTIF Supplier Schedule Achievement On Time New Products Total Net Value Delivered


Role of a Supplier Manager Role of a Supplier Manager The supplier manager has overall responsibility for a supplier relationship

• “Owns” the relationship on behalf of the customer organisation• Is a catalyst which enables the two organisations to work together• Regularly monitors the contact between the two organisations• Reports to Senior Management

He or she ensures that communications are effective and efficient• Manages initial discussions and assists in drawing up contracts• Is kept fully aware of communications & can be involved in negotiations & deals• Is the conduit and prime contact • Arranges and facilitates meetings and events

Can be dedicated to one strategic partner and/or Product Category • High involvement: one supplier manager for one supplier• Low involvement: One supplier manager for several suppliers


Identifies new value

opportunities

Defines the project and measures improvement

potential

Confirms resource requirements and

organisation Create project

with stage- gates and

milestones

Removes Roadblocks

for the project team

Measures the value delivered and communicates

progress

Implementation

Builds the relationship

Supplier Manager StagesSupplier Manager Stages


Positioning Supplier ManagersPositioning Supplier Managers

Supplier Importance

Current relationship

Negotiation & Deal Status

Current Communication

Involvement levels

Performance Measures

Key Considerations

© The Delos Partnership 2005The Delos Partnership Procurement Masterclass

CR

ITIC

ALIT

Y

TOTAL ANNUAL COST

HIGH

LOW

CRITICAL / HIGH COST

NON CRITICAL / LOW COST

CRITICAL / LOW COST

LOW HIGH

STRATEGICSTRATEGICCRITICAL CRITICAL

NUISANCENUISANCE LEVERAGELEVERAGE

NON CRITICAL / HIGH COST

Positioning MatrixPositioning Matrix


Risk

© The Delos Partnership 2005The Delos Partnership Procurement Masterclass

CR

ITIC

ALIT

Y

TOTAL ANNUAL COST

HIGH

LOW

CRITICAL / HIGH COST

NON CRITICAL / LOW COST

CRITICAL / LOW COST

LOW HIGH

STRATEGICSTRATEGICCRITICAL CRITICAL

NUISANCENUISANCE LEVERAGELEVERAGE

NON CRITICAL / HIGH COST

Positioning MatrixPositioning Matrix

EnsureSupply

Partner Value

MinimiseAttention

DriveSavings

Strategy PositioningStrategy Positioning


WorkshopWorkshop

What are the current current Supplier What are the current current Supplier Assessment tools for the Top Suppliers and Assessment tools for the Top Suppliers and what needs to be done to ensure suppliers what needs to be done to ensure suppliers deliver improved Total Value?deliver improved Total Value?


Typical Starting PointTypical Starting Point• There is huge and unrecognised value in supplier performance assessment.

• Internal Customers and most internal functions have their favourite suppliers.

• Most suppliers have made value contributions and are proud of their performance.

• Most suppliers will be Silver Gilt or below.

• Senior Management commitment to supplier performance assessment is normally low and respective senior management may have only met at social events.

• The lack of user requirement specifications and internal team working can mean that overall supplier performance is not recognised and understood

• Internal resistance to the programme may occur


Supplier Performance AssessmentSupplier Performance AssessmentSupplier Performance Assessment is a formal supply side management programme that continuously and quantitatively assesses the performance of suppliers against seven performance elements

1) Risk Management2) Quality, Regulatory and H.S.E.3) Cost (Price)4) Delivery 5) Process and Service6) Innovation7) Business Value and Net Total Value (€).

Its purpose is to provide a channel through which suppliers performance is professionally assessed and their best ideas are captured.


Supplier Ranking & PerformanceSupplier Ranking & PerformanceThere are five levels of Supplier

Performance is assessed against seven elements for all five levels

The level or ranking is based on the net total value delivered

Suppliers might be eliminated from any level

BRONZEBRONZE(New)(New)

SILVER SILVER (Development)(Development)

SILVER GILTSILVER GILT(Approved)(Approved)

GOLDGOLD(Preferred)(Preferred)

PLATINUM PLATINUM (Strategic)(Strategic)

SUPPLIERELIMINATION


SUPPLIER PERFORMANCE & VALUE GAP ASSESSMENT

Assessment Measure Assessment Measure BronzeBronze SilverSilver Silver GiltSilver Gilt Gold Gold PlatinumPlatinum ScoreScoreRisk Management Assessment

Quality & HSE Performance

Cost Performance

Delivery Performance

Process & Service Performance

Innovation Performance

Business Value & Net Total Value Delivered

Bronze = New SupplierSilver = Development SupplierSilver Gilt = Approved SupplierGold = Preferred Supplier Platinum = Strategic Supplier

Assessment MeasuresAssessment Measures


Supplier Performance AssessmentSupplier Performance Assessment

• The assessment is based on the net total value delivered by the supplier in the past;

• Involves a discussion on where performance has improved, declined or remain static versus each total value element.

• Involves a joint definition and agreement to specified future value added goals that are directly part of the business vision, strategy and priority.


Supplier Relationship Management Supplier Relationship Management Strategic Critical Suppliers – Workshop AgendaStrategic Critical Suppliers – Workshop Agenda


Workshop Scope Workshop Scope

Used for Strategic / Critical Suppliers to;• Reduce & Manage Risk

• Assure Supply

• Increase Joint Value

• Improve Relationships Current Performance Assessment

Supply Assurance

Joint Total Value Improvement

SRM Workshop

Relationship Improvement


• Review Supplier’s and current joint Supply Chain and map out the new process with the clear focus to achieve efficiency improvements.

• To gain full confidence in each others ability to deliver on new established process by defining and agreeing joint KPIs and reporting.

• Review of Supplier’s internal Supply Chain risk analysis and agree on strategy to minimise exposure of supply

Supplier Workshop PurposeSupplier Workshop Purpose


Focus is to get Focus is to get specific supplier specific supplier

to deliver all to deliver all orders orders

100% OTIF100% OTIF

PeopleProcesses

Poor communication& unreliable promises

Supplier lack of goals

Manufacturing Material

Order Placement

Supplier Projected Requirements

Machine Availability(Make our orders a top priority) Obsolete, Spoiled, Out of date, Non availability

Not to spec

Stoppages & Breakdownsdue to people, power and equipment

No carrots & sticks(rewards& penalties)

Materials Free Issue

Ordermanagement

Stores and Goods Receiving

Upstream materials long / variable lead time

Untrained, low capability, low commitment to value

Sub Contracted

Focus using Fishbone ToolFocus using Fishbone Tool


Baseline Current ValueBaseline Current Value

GOALS

PROJECT EXAMPLESImportance Weighting

Equipment Calibration ¤ ¤ ▲ ¡Cost of Incoming Raw Material Inspection

Cost of non - compliance to RFTQ

Outbound Delivery Charges (Target 75% reduction)

Courier Costs

Reduction in Warehouse space

RF or Electronic Barcoding Project

Qua

lity

Ass

uran

ceLo

gist

ics

Cost Focus Areas Potential Conflicts

Cost Avoidance

Procurement Unit Cost Reduction

Improve Materials

Usage

Overhead Cost Reduction

(Non-People)

Personnel Cost

Reduction

Perfect Customer

Order

Customer Quality

Product or Regulatory Compliance


Key Improvement GoalsKey Improvement Goals

GoalGoal Supplier Supplier Value Value HowHow WhenWhenImproved Supply Assurance & RFTQ 100%OTIF

Cost & Cash Planning and Cost Avoidance

Supply Chain Improvement & Lead Time Reduction

Net Value Improvement & innovation


Define &

Measure

Educate

Improve

Control Define &

Measure

SRM – DMAIC TimelineSRM – DMAIC Timeline


Benefits Tracking Benefits Tracking Integrated Reporting of Supply ResultsIntegrated Reporting of Supply Results


Business FinancialsBusiness Financials

The Board, Executive The Board, Executive Committee, Shareholders, Committee, Shareholders, Employees, Customers, Employees, Customers, Suppliers & Competitors Suppliers & Competitors are focused on business are focused on business financial performance financial performance and outlookand outlook


Supply FinancialsSupply Financials

Stakeholders, Management, Stakeholders, Management, Supply Chain, Supply Chain, Procurement and Suppliers Procurement and Suppliers are normally focussed on are normally focussed on AQCSI (Supply Assurance, AQCSI (Supply Assurance, Quality, Costs, Service and Quality, Costs, Service and Innovation), Cash (Assets, Innovation), Cash (Assets, Payment, Inventory) & Payment, Inventory) & Response TimesResponse Times


Reporting Timelines & StructuresReporting Timelines & Structures

Procurement Procurement RelationshipRelationship DailyDaily WeeklyWeekly Monthly Monthly QuarterlyQuarterly

Senior ManagementCustomer supply risk issues and immediate response if needed

Brief informal overview

Procurement Monthly Report

Procurement Review Meeting

Internal Customers & Stakeholders

Customer supply risk issues. Customer claims or service issues

Personal contact for two way update

Relevant parts of the Procurement Monthly Report

Review of KPI's and key issues

Other key sister functions

Customer supply risk issues.

As and when required or if priority item needs resolution

Relevant parts of the Procurement Monthly Report

Review of KPI's and key issues

SuppliersCustomer supply risk issues and corrective actions.

Weekly Performance Reports

Transmission and review of performance

and supply data

Supplier Performance Assessment Meeting

Procurement Team Customer supply risk issues, market information, visit and meeting reports

Savings Log and Team Meetings

Monitoring of results by supplier, by product vs. agreements and plan

Performance appraisal - team and individual


Quarterly Focus & Goals Quarterly Focus & Goals

• Quarterly focus documents should be produced for the complete procurement and supply chain team.

• Focus documents are an excellent way of ensuring team consensus and awareness of the overall business goals, overall functional goals and individual goals – all of which must be aligned.

• All quarterly goals – business, function and individual need to be S.M.A.R.T.

• All team members need to contribute to the quarterly focus followed by a commitment from all team members to write & share their smart goals.


Smart Goal Definition Smart Goal Definition

SpecificSpecificWhat is the specific goal?What is the benefit to the business?How can we measure the performance?

MeasurableMeasurable How will the business measure the value of the goal? How will the business measure the volume of work?

AchievableAchievable Does the business team/business support the goal? Can the goal be achieved with current resources?

RealisticRealistic Is the goal realistic?Is there past experience in the business of this goal?

Time limitedTime limited How will progress be reviewed? What are the consequences if the goal deadline is missed?


Results Tracking Results Tracking

• Cost Change is normally allocated against cost centres & monthly cost centre report and procurement report is produced.

• Stakeholders, customers, finance and procurement need to own the cost centre cost, results and performance change.

• A common results tracking system needs to be developed and agreed – tied into the business financials


Results Tracking Results Tracking

• Key performance indicators show progress or deterioration versus the standard using overall total value, supplier and procurement performance change (i.e. not just price or quality)

• Cost avoidance must be against agreed market and competitor benchmarks.

• Performance and results need to be communicated on a monthly basis.


Procurement Focus ExamplesProcurement Focus Examples

• Supply Assurance – Specific Quarterly Focus Areas

• Total Value plan – Specific Quarterly Focus Areas

• Improve purchasing processes – Specific Quarterly Focus


Internal Benefits TrackingInternal Benefits Tracking

Procurement Person Responsible

Date Supplier Name Order Value Product or Service Description

31Dec04 Baseline (Index)

New 2005 Deal (Index) Value Change (%)

Procurement Value Change

(£)

Less Inventory Adjustment (£)

Net Procurement Value Impact (£)

Net Procurement Value Impact (%)

Jan-05 Delos £500,000 Concentration on Delos as a supplier 100.0 95.0 -5.0 £25,000 £0 £25,000 -5.0%Jan-05 Supplier B £40,000 100.0 100.0 0.0 £0 £0 £0 0.0%Jan-05 Supplier C £100,000 100.0 95.0 -5.0 £5,000 £0 £5,000 5.0%Total £640,000 £30,000 £0 £30,000 4.7%

Jan-05 Supplier D £400,000 Price increase of 7% from Supplier D 100.0 107.0 7.0 -£28,000 £14,452 -£13,548 3.4%Jan-05 Supplier E £750,000 Product E Price Increase of 5% incurred from 21Jan04 - No stock 100.0 105.0 5.0 -£12,097 £0 -£12,097 1.6%Jan-05 Supplier F £200,000 Did not deliver Product F OTIF causing production delays 100.0 100.0 0.0 -£20,000 £0 -£20,000 10.0%Total £1,350,000 -£60,097 £14,452 -£45,645 -3.4%

£1,990,000 -£30,097 £14,452 -£15,645 -0.8%

Jan-05 Supplier A £500,000 01Jan04 increase of 2.5% avoided 100.0 97.5 -2.5 £12,500 £0 £12,500 2.5%Jan-05 100.0 -100.0 £0 £0 £0Jan-05 100.0 -100.0 £0 £0 £0

£500,000 £12,500 £12,500 2.5%

Cost Avoidance

Cost Avoidance Total

DELOS PROCUREMENT - TOTAL VALUE PLAN (+20% GOAL)

Value Creation

Value Destruction

Net Value Delivered


Category Total Value PlanCategory Total Value Plan

€ 0 € 20,000 € 40,000 € 60,000 € 80,000

MonthlyGoal

MonthlyActual

No of New ProductsNo of SuppliersCash ImprovementCost ImprovementPrice ReductionsPrice Increases


Questions ?Questions ?

supplier mgt. slide 1 © the delos partnership 2005 supplier relationship management module 8 –...

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