Chapter 7 Supply Chain

Change Management

(prepared to manage change)

Supplier Evaluation

A process to identify best and most reliable suppliers

Standards of excellence

ISO is highly sought after as it represents achieving and maintaining _______________ verified by an independent third party organization

Exceptional performance and services

It is always a good practice for a company to have innovative supplier recognition programs in order to recognize their achievements and reward them for their ____________________

providing suppliers with what they need to be successful in the supply chain

Supplier development is all about

Success of the business

_______ can depend on quality and performance of company's suppliers

Key Supplier Selection

conducted by a cross functional team approach using evaluation forms or scorecards weighting techniques often used

Value Engineering

help the buyer's company to reduce cost, improve quality and reduce new product development time beginning with the initial design

Plan

identify an opportunity and plan for change

SRM

identifying and measuring key strategic suppliers improving profits and reducing costs (sourcing analytics, sourcing execution, procurement execution, payment and settlement, supplier score-carding, performance monitoring)

Supplier Certification Programs

one of the elements for building a strong supplier partnership is having a well-defined and established _______

personal relationships

people who communicate and make things happen

administration of a certified supplier program

requires planning and long-term attention

ISO 9000

series of management and quality standards in design, development, production, installation, and service companies wanting to sell in global markets get _______

Certified supplier

source that through prior experience and qualification an provide material of such quality that it needs little if any receiving inspection or testing before going into approved stock or onto the product process

capabilities

suppliers must have right tech and capabilities to meet reqs in timely manner

International Organization for Standardization (ISO)

world's largest developer of voluntary international standards

1. Identify critical products and services 2. Identify critical suppliers of those products and services 3. Form a cross-functional team internally to work with the supplier 4. Meet with the top management at the supplier to get their support and involvement 5. Identify key development needs and projects 6. Define details of the agreement and the action plan 7. Monitor the status of the projects / action plan and modify strategies as necessary

Supplier Development Process:

1. reducing amount of TIME and RESOURCES necessary for the buyer to conduct incoming inspections of products and materials from certified suppliers 2. building long-term relationships 3. decreasing the supplier base -> certified suppliers are more reliable, so don't need as many suppliers 4. recognizing excellence

benefits of supplier certification programs:

information sharing and lines of communication

formal and informal communication for free flow of info, confidentiality to sensitive info

surprises

frequent feedback can help avoid ________ and maintain good relationships

Do

implement the change on small scale

1. customer focus 2. leadership 3. involvement of people 4. process approach (desired result achieved through managed process) 5. systems approach to management 6. continual improvement 7. factual approach to decision making 8. mutually beneficial supplier relationship

** know this ISO 9000's 8 quality management principles

The Weighted-Criteria Evaluation System

1. Select the key dimensions of performance mutually acceptable to both customer & supplier. 2. Monitor & collect performance data. 3. Assign weights to each of the dimensions. 4. Evaluate performance measures between 0 & 100. 5. Multiply dimension rating by weight & sum of overall score. 6. Classify vendors based on their overall score: Unacceptable, Conditional, Certified, & Preferred 7. Audit & perform ongoing certification review.

ISO 14000

A family of standards for environmental management. The benefits include reduced energy consumption, environmental liability, waste & pollution, & improved community goodwill.

Supplier Recognition Programs

A program to recognize suppliers who achieve the high performance standards necessary to meet customer expectations.

- access to suppliers best people - increased operating efficiencies - lower costs - improved quality - enhanced service - influence over supplier investments and tech - access to supplier ideas - increased innovation from/with suppliers, lowering costs and incremental revenue - competitive advantage

Benefits for BUYERS of Strategic Partnerships with Suppliers:

- greater visibility into buyer's purchasing plans - increased operating efficiencies - future business - increased scope of business and revenue - lower costs, increased margins - opportunities to develop, pilot, and showcase innovative solutions - competitive advantage

Benefits for SUPPLIERS of Strategic Partnerships:

- greater market potential - compliance to procurement bids - improved efficiency and cost savings, higher level of customer service - staff moral and motivation

Benefits of ISO cert

motivation plan

If a company is going to keep and utilize a supplier there should be a ____________ that reaches them

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

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.

- Building trust - Shared vision and objectives - personal relationships - mutual benefits and needs - commitment and top management support - change management - info sharing and lines of communication - capabilities - continuous improvement - plan, do, check, act - performance metrics

Keys to successful strategic partnerships:

Delivery On time in full 40% Quality 40% - Number of Supply Chain Action Reports 50% - Defects PPM 50% SCSS = Supplier Cost Savings Suggestions 20%

Overall Supplier Rating Made Up of:

S.M.A.R.T. = Specific, Measurable, Achievable, Relevant, Time-oriented

SMART

- provide high volumes of product/service - provide less quantities of a crucial product/service - serve many vusiness units of a company - where engineering, manufacturing, and/or logistic interaction is essential

SRM typically applied with suppliers who:

Developmental

Score of 0 to 69, require corrective actions from these suppliers on how they will achieve acceptable level look for alternative suppliers if these do not achieve acceptability within fixed period of time

Acceptable

Score of 70 to 89, require a plan from these suppliers outlining how they will achieve preferred status

Preferred

Score of 90 to 100, work with these suppliers in maintaining a competitive position on new product development

facts; perception

Sourcing decisions are made on _______ and not on __________

- Important to achieving win-win competitive performance for the buyer and supplier - Require strategic perspective as opposed to tactical perspective

Strong Supplier Partnerships

Supplier Relationship Management (SRM)

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. organized approach to defining what they need and want from a supplier Establishing and managing the company-to-company link to obtain those needs.

more comprehensive and objective view of supplier performance - help identify performance issues - help make sourcing decisions

The reason for a supplier relationship management (SRM) system is to provide

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

Three attributes of supplier recognition programs:

1. Close alignment of sourcing with supplier relationship management 2. Focus on cross-functional engagement 3. Focus on innovation 4. Investment in people and soft skills

Trends in SRM:

ISO 9000 and 14000

Two standards commonly used for supplier certification:

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 [i.e., a SCORECARD]

cost

________ becomes relatively less important when evaluating key suppliers for developing a collaborative relationship Excellent suppliers will be able to drive ____ out

Strategic Sourcing partners

____________ offer the opportunity for a company to extend their intellectual capabilities by involving their external partner base in product development

Total cost of ownership

is made up of all costs associated with the acquisition, use, and maintenance of a good or service

1. Automation is meant to handle routine transactions 2. Integration spans multiple departments, processes, and software applications 3. Visibility of information and clear and concise process flows 4. Collaboration through information sharing 5. Optimazation of processes and decision making AIVCO

key points to consider in the development/implementation of an SRM system:

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

Building trust

more willing to work together, compromise, long-term benefits for both parties

Supplier development program

must be aimed at improving suppliers performance, not bullying them into charging less or simply auditing and rewarding them

shared vision and objectives

partners share same vision, mutually agreeable objectives, focus beyond tactical and toward strategic path

Plan do check act

process commonly used in continuous improvement

Supplier development

the technical and financial assistance given to existing and potential suppliers to improve quality and/or delivery performance. buyers activities to improve a suppliers capabilities suppliers knowledge and technology can be leveraged

"squeezing" suppliers

try to generate lower annual purchasing spend, but hurts strategic relationships... often still done

Check

use data to analyze results of the change and determine whether it made a difference

Associated business process changes

SRM can only be implemented in line with the ___________________

Commitment & Top Management Support

- Commitment must start at the highest management level. - Partnerships tend to be successful when top executives are actively supporting the partnership (highest management level, top executives actively supporting partnership)

Strong Supplier 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"

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 is not likely to last

1. Motivate suppliers: motivate them to excel in their quality, pricing, and delivery commitments 2. Improve supplier loyalty: important to ensure that customer delivery commitments are maintained 3. Encourage Suppliers to adapt to 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. 4. Helps create entry barriers for competitors: if suppliers trust company, more likely to sign deals of exclusivity for certain crucial components 5. encourages supplier participation in product innovation: recognition to suppliers also brings about their enthusiasm to work closely with the company on new product development

Benefits of Supplier Recognition Programs:

Supplier (has): - NO incoming product REJECTIONS for a specified time period. - NO incoming LATE DELIVERIES for a specified time period - NO significant NEGATIVE QUALITY related incidents for a specified time period - ISO 9000 certified or has successfully passed a recent on-site quality system evaluation - consistently meets a mutually agreed-upon set of clearly specified quality performance measures - a fully documented process and quality system with cost controls and continuous improvement capabilities - processes is determined to be STABLE and in control

Criteria for an internal certification program:

Rating x Weight = Final Value Get total score by adding all final values

Equation for weighted-criteria evaluation system:

- conform to external set of standards for quality and delivery of service - open to sharing SC information - welcome to building customer relationships - formal processes for continuous improvement of products, services, and processes - easier for procurement to *initially qualify and periodically audit* - done by independent 3rd party agency - re-certification every 3 years

ISO certified suppliers are preferred by procurement dept because:

Performance (supplier evaluation)

It is important to actively monitor a supplier's _____________ and provide visibility and feedback on supplier ___________ at each stage of the evaluation process.

1. providing information about products/sales growth/etc. suppliers need to become extensions of their customers 2. 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)

two of the most important functions of a supplier development program are: