Chapter 7 Supply Chain
Supplier Recognition Programs: Three Attributes
1. Companies should recognize and celebrate the achievements of their best suppliers. 2. Award winners exemplify true partnerships, continuous improvement, organizational commitment, and excellence. 3. Award-winning suppliers serve as role models for other suppliers.
Supplier Recognition Programs
A program to recognize suppliers who achieve the high performance standards necessary to meet customer expectations. Slide 37
Keys to Successful Strategic Partnerships Information Sharing and Lines of Communication
Both formal and informal lines of communication should be set up to facilitate free flow of information. Confidentiality of sensitive information must be maintained
Keys to Successful Strategic Partnerships Shared Vision and Objectives
Both partners must share the same vision and have objectives that are not only clear but mutually agreeable. The focus must move beyond tactical issues and toward a more strategic path to corporate success.
Keys to Successful Strategic Partnerships Commitment and Top Management Support
Commitment must start at the highest management level. Partnerships tend to be successful when top executives are actively supporting the partnership
Keys to Successful Strategic Partnerships Change Management
Companies must be prepared to manage change that comes with the formation of new partnerships
Keys to Successful Strategic Partnerships Mutual Benefits and Needs
Partnership should result in a win-win situation, which can only be achieved if both companies have compatible needs. An alliance is much like a marriage, and if only one party is happy, then the marriage (i.e., alliance) is not likely to last
SRM seeks to improve profits & reduce costs using tools such as:
Sourcing Analytics Sourcing Execution Procurement Execution Payment and Settlement Supplier Score-carding Performance Monitoring
ISO certification is highly sought after in the business world as it represents
achieving and maintaining a stand of excellence verified by an independent third party organization.
Value Engineering
activities help the buyer's company to reduce cost, improve quality and reduce new product development time
Most supply professionals view SRM as
an organized approach to defining what they need and want from a supplier and establishing and managing the company-to-company link to obtain those needs
"Squeezing" suppliers to generate a lower annual purchasing spend hurts strategic relationships!
but it is very often still done! [Profit Leverage Effect]
SRM is about
identifying and measuring KEY STRATEGIC suppliers.
Companies may choose to develop
internal certification programs, and many also require external certifications such as ISO 9000 / ISO 14000 as part of their overall certification process
Performance Metrics: Total Cost of Ownership (TCO)
is made up of all costs associated with the acquisition, use, and maintenance of a good or service
Successful Strategic Partnerships involves a
mutual commitment over an extended time to work together to the mutual benefit of both parties, sharing relevant information and the risks and rewards of the relationship"
Benefits of Strategic Partnerships with Suppliers
slide 14
Relevant Metrics
slide 17
The Weighted-Criteria Evaluation System
slide 19 and 20 and 21
Internal Certification Programs
slide 26
ISO certified suppliers are frequently preferred by procurement departments
slide 30
Supplier Development: Process Steps
slide 34
Trends in Supplier Relationship Management
slide 45
Strategic Sourcing partners offer the opportunity for a company to extend
their intellectual capabilities by involving their external partner base in product development.
Preferred Suppliers
work with these suppliers in maintaining a competitive position and on new product development slide 22
Supplier Relationship Management System
The reason for a system is to provide a more comprehensive and objective view of a supplier(s) performance slide 42
The following are five (5) key points to consider in the development and implementation of an SRM system:
Automation is meant to handle routine transactions Integration spans multiple departments, processes, and software applications Visibility of information and clear and concise process flows Collaboration through information sharing Optimization of processes and decision making
Successful Strategic Partnerships require a
strategic perspective as opposed to a tactical position
Supplier Development
technical and financial assistance given to existing and potential suppliers to improve quality and/or delivery performance. slide 32 and 33
Supplier Certification Programs
used to differentiate strategic supplier alliance candidates from others. Buyers can monitor quality assurance methods and specify the type of acceptance sampling and statistical process control methods used
Keys to Successful Strategic Partnerships Building Trust
with trust, partners are more willing to work together, find compromise solutions to problems, work toward achieving long-term benefits for both parties, and go to the extra mile.
Benefits of Supplier Certification Programs
1. Reducing the amount of time and resources necessary for the buyer to conduct incoming inspections of products and materials from certified suppliers. (slide 25) 2. Building long-term relationships 3. Decreasing the supplier base 4. Recognizing excellence
Supplier Evaluation
A process to identify best and most reliable suppliers Sourcing decisions are made on facts and not on perception Frequent feedback can help avoid surprises and maintain good relationships. Suppliers should be allowed to provide constructive feedback to the customer
eight (8) quality management principles on which the ISO 9000 series quality management system standards are based slide 29
Customer focus - understand current and future customer needs Leadership - establish unity of purpose and direction of the organization Involvement of people - people are the essence of an organization Process approach - a desired result is achieved through a managed process Systems approach to management - managing interrelated processes Continual improvement - performance improvement is a permanent objective Factual approach to decision making - decision are based on facts and data Mutually beneficial supplier relationship - interdependent benefits create value for both an organization and its suppliers
Two ISO standards commonly used for supplier certification are:
ISO 9000-management and quality standards ISO 14000-standards for environmental management slide 28
Successful Strategic Partnerships
Important to achieving win-win competitive performance for the buyer and supplier
External Certification
International Organization for Standardization (ISO) is the world's largest developer of voluntary international standards. slide 27
Supplier Evaluation: Performance
It is important to actively monitor a supplier's performance and provide visibility and feedback on supplier performance at each stage of the evaluation process.
Early Supplier Involvement (ESI)
Key suppliers become more involved in the internal operations of the buyer's company, particularly with respect to new product and process design, concurrent engineering, and design for manufacturability.
Keys to Successful Strategic Partnerships Capabilities
Key suppliers must have the right technology and capabilities to meet cost, quality, and delivery requirements in a timely manner (current and future)
Keys to Successful Strategic Partnerships Continuous Improvement
Making a series of small improvements over time results in the elimination of waste in a system Buyers and suppliers must be willing to continuously improve their capabilities in meeting customer requirements
The process commonly utilized in continuous improvement is;
Plan: Identify an opportunity and plan for change. Do:Implement the change on a small scale. Check: Use data to analyze the results of the change and determine whether it made a difference. Act:If the change was successful, implement it on a wider scale and continuously assess your results. If the change did not work, begin the cycle again slide 12
Overall Point Score
Preferred: 90 to 100 Acceptable: 70 to 89 Developmental: 0 to 69
SRM is often a part of the rollout of Strategic Sourcing and is typically applied with suppliers:
Providing high volumes of a product/service Providing lesser quantities of a crucial product/service That serve many business units of a company or organization Where intensive engineering, manufacturing and/or logistics interaction is essential.
Two of the most important functions of a supplier development program are:
Providing information about products, expected sales growth, etc. Suppliers need to become extensions of their customers. Training suppliers in the application of lean and six sigma / quality tools. Asking suppliers to lower their price without giving them the knowledge on how to lower their costs is not sustainable in the long-term.
Supplier Relationship Management (SRM)
SRM is the discipline of strategically planning for, and managing, all interactions with the third party organizations that supply goods and/or services to an organization in order to maximize the value of those interactions.
Benefits of Supplier Recognition Programs
Slide 39/40 A properly developed and led supplier recognition program will make major contributions to the organization, its suppliers, and to its customers and stakeholders. If a company is going to keep and utilize a supplier, there should be a motivation plan that reaches them.
Keys to Successful Strategic Partnerships Personal Relationships
Strategic Partnerships begin with the development of personal relationships between key people at each company It is people who communicate and make things happen
Evaluating and Selecting Key Suppliers
When evaluating key suppliers for developing a collaborative relationship, purchase cost becomes relatively less important.
Keys to Successful Strategic Partnerships Performance Metrics
You can't improve what you can't (or don't) measure Measures related to quality, cost, delivery, and flexibility are used to evaluate suppliers. Metrics should be: 1) understandable, 2) easy to measure, and 3) focused on real value-added results [S.M.A.R.T. objectives] A multi-criteria approach is best
Key Supplier Selection
is typically conducted by a cross functional team using evaluation forms or scorecards. Weighting techniques are often used.