Ch 7 Supply Chain
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
Benefits for Suppliers:
Greater visibility into buyer's purchasing plans Increased operating efficiencies Longer term buyer commitments; predictability of future business Increased scope of business and revenue Lower costs of sales; increased margins Opportunities to develop, pilot, and showcase innovative solutions Sustainable competitive advantage
Personal Relationships
Strategic Partnerships begin with the development of personal relationships between key people at each company One to one relationship at all levels of the organization It is people who communicate and make things happen
Supplier Relationship Management System
The reason for a system is to provide a more comprehensive and objective view of a supplier(s) performance - A system will help in identifying and addressing supplier performance issues. - A system can also be used to help make sourcing decisions. It is important to recognize that an SRM system can only be implemented in line with the associated business process changes.
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. Best Practices enable suppliers to provide constructive feedback to the customer to improve the overall relationship
Supplier Recognition Programs
A program to recognize suppliers with outstanding performance and exceed the set performance standards.
Trends in Supplier Relationship Management
Alignment of sourcing with supplier relationship management - Category management strategy is driving supplier selection, negotiation strategies and retention. Cross-functional engagement - Strategic supplier relationships involves teams from both companies to collaborate on process improvements. Focus on product and process innovation - Companies must continue to innovate with suppliers to remain competitive and gain market share. Open and collaborative communication - Treat suppliers with the respect. Share market information to enable continuous improvement. Accept supplier feedback.
Information Sharing and Lines of Communication
Both formal and informal lines of communication are maintained to facilitate free flow of information. Confidentiality of sensitive information must be maintained and is part of the Trust factor
Keys to Successful Strategic Partnerships
Build Trust Shared Vision & Objectives Personal Relationships Mutual Benefits & Needs Commitment & Top Management Support Change Management Information Sharing & Lines of Communication Aligned Capabilities Use Performance Metrics
Change Management
Companies must be prepared to manage change that comes with the formation of new partnerships Companies must be able to move forward and change together to be successful
Meet regularly with each supplier to review performance report (monthly, quarterly, annually)
Current performance vs. previous scores by category Agreed action plan to address deficiencies and timing of implementation Business expansion for top performers
International Organization for Standardization (ISO)
ISO International Standards ensure that products and services are safe, reliable and of good quality. For business, they are strategic tools that reduce costs by minimizing waste and errors and increasing productivity. They help companies to access new markets, level the playing field for developing countries and facilitate free and fair global trade.
Building Strong Supplier Partnerships:
Involves a mutual commitment over an extended time to work together to the mutual benefit of both parties. Requires sharing relevant information and the risks and rewards of the relationship Requires a strategic perspective to a long term relationship as opposed to a tactical position focused on short term gains.
Supplier Relationship Management (SRM)
Involves developing partnerships with key suppliers Reduce total costs / Increase market share Innovate new products and services Create value for both companies Focusing on a small set of critical suppliers High volumes & Large impact on profitability Provide product or service critical to the firm's success Requires technical integration Manage other suppliers based on segmentation Segmented based on supply and company goals Manage the segment to obtain positive impacts
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. Strategic Suppliers are asked to add their knowledge and expertise to the company's new product development process.
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 a relationship, if only one party is happy, then the relationship (i.e., alliance) is not likely to last
Benefits for Buyers:
Preferred access to the supplier's best people Increased operating efficiencies Lower costs Improved quality Enhanced service Influence over supplier investments and technology Increased innovation from and with suppliers, leading to lower costs and incremental revenue Sustainable competitive advantage
S.M.A.R.T.
Specific, Measurable, Achievable, Relevant, Time-oriented
Supplier Evaluation: Scorecard method
The Scorecard - Weighted-Criteria Evaluation System Select the key areas of performance that impact overall success. Assign weights to each are based on importance (total = 100%). Monitor and collect data to evaluate supplier performance in each area. Assign a rating for each area between 0 and 100. Score = rating x weight. Overall score = Sum of individual scores. Classify vendors based on their overall score, Preferred, Acceptable, Developmental, Unacceptable Meet with supplier to review scorecard and take action on areas needing improvement. Continue to review performance
Categorize suppliers based on performance scores
Unacceptable - Immediate action or drop Developmental - Specific areas need improvement Acceptable - Meets all performance targets Preferred - Top performers gain additional business / expand
Value Engineering
activities help the buyer's company to reduce cost, improve quality and reduce new product development time
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.
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.
Supplier Certification
"an organization's process for evaluating the quality systems of key suppliers in an effort to eliminate incoming inspections."
Building
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 the extra mile.
Five (5) key points to consider in the development and implementation of an SRM system:
Automation - to handle routine transactions Integration - spanning multiple departments, processes, and software applications to get complete information for better decision making Visibility - to information and performance Collaboration - through information sharing Optimization - of processes and systems
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. Some relevant metrics include: Price and cost performance Product quality Delivery performance Financial stability Compliance to contractual requirements and standards Participation in process improvement and product development efforts Support of company ethics and sustainable practices
Aligned Capabilities
Key suppliers must have the right technology and capabilities to meet cost, quality, and delivery requirements in a timely manner (current and future) The capabilities must be synergistic for maximum benefit
Benefits of Supplier Recognition Programs
Motivate Suppliers to Perform Better - Can motivate suppliers to excel in terms of their quality, pricing and delivery commitments. Improve Supplier Loyalty and Commitment - Supplier support is important to ensure that customer delivery commitments are maintained. Encourage Suppliers to Adapt to the Company's Culture - If the company treats its suppliers as a part of the family and engages in supplier recognition programs periodically, it can help to bring the suppliers closer to the corporate values, ethics and principles of the company. Helps to Create Entry Barriers for Competitors - If the suppliers trust the company, they may be more inclined to sign deals of exclusivity with the company for certain crucial components. Encourages Supplier Participation in Product Innovation - Recognition to suppliers also brings about their enthusiasm to work closely with the company on new product development.
Criteria Commonly Used in Certification Programs
Product quality rates (defective product). Non-product issues (e.g., on time delivery). No significant negative incidents Recognized agency certified or successfully passing a recent audit Fully documented process & quality system with cost controls & continuous improvement capabilities Supplier's process is stable with proper controls Supplier's financial health - Companies can choose to develop internal certification programs and / or require certifications from external organizations
Supplier Development
Supplier development is the technical and financial assistance given to existing and potential suppliers to improve quality and/or delivery performance. It is a buyer's activities to improve a supplier's capabilities. Supplier development programs are designed to achieve: Lower supply chain total cost Increased profitability for all supply chain participants Increased product quality Improved reliability at each point in the supply chain - Supplier development is all about providing suppliers with what they need to be successful in the supply chain.
Supplier Development: Process Steps
The typical approach to supplier development is based on the following process steps: Identify critical products and services Identify critical suppliers Form a cross-functional team internally to work with the supplier Meet with the top management at the supplier to get their support and involvement Identify key development needs and projects Define details of the agreement and the action plan Monitor the status of the projects / action plan and modify strategies as necessary - With a robust supplier development program, companies can establish trust through a heightened commitment to their supply partners.
ISO certified suppliers are preferred:
They have conformed to an externally defined and industry developed set of standards for quality and service. They have formal processes in place for continual improvement of their products, services, and processes Certification is done by an external agency not subject to bias or influence Firms have to be re-certified every three years Companies do not have to invest resources into certifying areas covered by the external certifications Provides assurance of the supplier's capabilities Total cost is reduced as inbound inspections can be curtailed
Performance Metrics
You can't improve what you can't (or don't) measure Measurements related to the firm's strategic objectives should be used to evaluate key suppliers Measures related to quality, cost, delivery, and flexibility are commonly used in supplier evaluations. Metrics should be: 1) understandable, 2) easy to measure, and 3) focused on real value-added results [S.M.A.R.T. objectives]
ISO 14000
addresses various aspects of environmental management and constantly improve their environmental performance. The benefits include reduced energy consumption, environmental liability, waste & pollution, & improved community goodwill.
ISO 9000
addresses various aspects of quality management & quality standards in design, development, production, installation, & service. It is based on a number of quality management principles including a strong customer focus, the motivation and implication of top management, the process approach and continual improvement.
Supplier Relationship Management (SRM) definition
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. - 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. - SRM enables companies to identify their most important suppliers. This enables companies to focus their resources and maintain more strategic relationships with suppliers. This will result in positive impacts from the supply base on costs, quality, delivery and innovation.