Module 2 Section I: Supplier Relationship Management (SRM)

Trade exchange supplier benefits

- Automatic connections and lower transaction costs - Access to a wider market - Faster payment receipt - Ability to offer all available inventory - Knowledge of winning bid can improve future bidding - Better and more accurate catalogs - Volume leverage reducing logistics - Reduction of replenishment lead time - Supply and Demand planning and collaboration

Trade exchange benefits for buyers

- Better control over negotiated purchasing agreements. - Standard product specs - Reduced administrative costs - Lower unit costs - Faster response to needs and faster time-to-market - Improved catalog accuracy - Reduced logistics and transportation costs due to better volume

CHALLENGES IN IMPLEMENTING SRM

- Both SRM and CRM are external SC facing, both involve learning a set of philosophies, methodologies, and technologies, and both are essentially 2 sides of the same coin. Both require soft people skills --challenges: ---Reengineering org structures ---Creating virtual orgs ---Reexamining existing technologies - Suppliers who are being squeezed finiancially have little incentive to deepen their relationship with an org unless they feel they will be offered some ways to cut costs or increase profits in exchange for the additional time and effort involved in extended partnerships.

Challenges in SRM: Complexities of global alliances

- Cultural and language differences - Multiple currencies and fluctuations - hedging against currency fluctuations - Difference legal systems - must recognize the legal requirements of all the countries and regions. May not always be clear. - Security concerns - threats include information, trade secrets, patents, customer relationships, and personnel. - Search for qualified partnerships - Business process concerns - Quality, safety, design.

Consortia trade exchanges (CTX) or consortia-based marketplaces

- DEF: an online marketplace, usually owned by a 3rd party, that allows members to trade with each other. This site lowers member's search costs and enables lower prices for the buyer. - These exchanges are semipublic and because all members are allowed to trade with one another and price is often a major factor in purchases. --excess inventory and capacity is frequently traded in a clearinghouse.

Negotiations

- DEF: buyer and vendor agree upon the conditions surrounding the purchase of an item

Portals

- DEF: multiservice Web site that provides access to data that may be secured by each user's role. Users can aggregate data and perform basic analysis. --provide faster access to information than a person could collect, sort, and aggregate on his own. --increase information reach and reduce distribution cost. Types of portals - Business portals - Org intranets and extranets - Portals give employees and trading partners access to data - Portals can gather and continually update both external and internal sources of real-time information to determine customer priorities. SRM portals - allow individuals to view and react to the results of production changes on supplier product or service availability and see exception-based information and forecasts based on POS data. - Often a user has no ability to modify the data, which is ideal for partners who need the information but should not be able to change it.

Private trade exchanges (PTX) or private marketplaces

- DEF: trade exchanges hosted by a single company to facilitate collaborative e-commerce with its trading partners. --provides host company with control over many factors, including who may participate --goal: to improve SC efficiencies and responsiveness through improved visibility and collaboration, advanced integration platforms, and customization capabilities. - PTX's are formed by market-dominant companies --Most private exchanges are members-only sites, but they do not usually charge fees and do not force suppliers to compete on price alone.

Step 4: Establish ground rules

- Develop guidelines, processes, and protocols for how the partners will work together, resolve conflict, and mutually manage the relationship. --must have flexible and functional relationship management tools --ex: partnership must develop an agreement about what will happen when a client needs a product that may be available from competitors but not from the financial services company

Trading exchange community

- Exchanges facilitate collaboration because members can avoid forming multiple individual interfaces. - Bidding events may require hours of preperation. - Supplier availability is communicated to the buyer and the exchange confirms the order.

Challenges in SRM: Obstacles to SRM software adoption

- Failures of SRM technology initiative were attributed to the following reasons: 1. Immense complexity of bringing SC optimization science into an operational environment 2. Lack of deep implementation experience 3. Lengthy required lead times 4. Insufficient focus on the management of change. - other orgs avoid some SRM technology challenges by using a SaaS solution. This may be expensive but lower risks of failure and vastly reduced lead times are often cited as reasons for this choice.

Effects of SRM on the firm and its supplier

- From a supplier perspective, it has also increased the complexity of intermediate customer relationships. - strategic sourcing has increased the complexity of purchasing. Once one-time transactions are now recurring relationships that must be planned, monitored, and measured for their impact on business goals. - SRM technology puts in-depth information about the supply channel in the hands of purchasing managers, planners, and purchasing agents/buyers in real time. - Requirements for purchasing jobs have changed accordingly. --must have greater understanding of corporation's business goals --must have substantial analytical abilities and people skills. - Planners, purchasing agents, and buyers must be familiar with a host of SRM technologies --must be creative in translating corporate purchasing strategies into specific tactics and in finding opportunities to improve tactical processes. --must be able to track global logistics and contract performance. - Purchasing management must master the best practices for operating successfully in a global market --manager for international suppliers will need a special set of soft skills (sensitive to other party's culture).

USING TECHNOLOGY TO IMPLEMENT SRM

- Goal of SRM system technology - streamline and make processes between an org and its suppliers more effective. - SRM technology increases the efficiency of processes associated with acquiring goods and services, managing inventory, and processing materials. - SRM is not just a technology - technology alone cannot solve the challenges that business and SCs face in implementing their SRM programs.

Benefits of SRM software

- Horizontal and online marketplaces have seen decreased transaction costs. - tends to work well with most existing ERP systems and actually helps those systems to achieve their full, promised potential. - companies have discovered benefits related to the sourcing process itself. --software brings all sourcing quotation data together for simplified analysis --projects can be saved and then reposted later. - Makes it easier for companies to select suppliers so that prices can be compared quickly. - can help standardize purchasing decisions. --centrally made strategic sourcing decisions among decentralized buyers. - faster communication between buyer and seller

Trade exchange risks for buyers

- Lower quality goods - Nonconformance to specs - More product rework and returns - Long-term loss of suppliers

Internet-enabled sourcing

- Many of the cost-saving initiatives surrounding purchasing and outsourcing have been enabled by an array of Internet-enabled sourcing or procurement technologies, including applications for spend analysis, sourcing, procurement, strategic sourcing, and contract management. - Internet-enabled sourcing is available as a feature of purchased SRM software, through ERP systems, or through a software as a service (SaaS) - can make use of trading exchanges or online auctions to find suppliers - Trading exchanges and auctions significantly improve transaction velocity through automation.

Methods of sharing ratings with suppliers

- Measures and standards can also be automatically collected and disseminated to both the org and to suppliers. --Suppliers should understand when missed standards or overall ratings will initiate corrective actions --rating systems are not just a historical tool, but a set of active controls. Supplier performance can be shared with suppliers: 1. Scorecards- quantitative and qualitative data - suppliers have access to their own scorecard and can address specific areas of concern immediately. Scorecards should be sent to strategic suppliers on a regular basis, at least quarterly 2. Performance alerts - real time basis 3. Surveys - sent to SC managers in order to gather qualitative informaiton on the performance of suppliers.

Step 3: Negotiate a win/win deal

- Negotiators must focus on their future working relationship as well as the immediate substance of their negotiations. - consider price, manufacturing goals (cost and quality) nature of the design. --ex: including the designer nameplate to attract new business.

Negotiating contracts

- Normal responsibilities must be defined as well as what actions can be taken if unexpected events arise or failures occur - Contract - an agreement between 2 or more competent persons or companies to perform or not to perform specific acts or services or to deliver merchandise. --may be oral or written. --a PO operates as the highest level of a contract except where a longer-term contract exists. Types of contracts: 1. Annualized contract - Agreement for one year that sets pricing, helps ensure a continuous supply of material. 2. Bilateral contract - Agreement wherein each party makes a promise to the other party. 3. Contracts for the international sales of goods (CISG) - enable exporters to avoid choice-of-law issues 4. Trading partner agreement - legal and binding agreement suitable for legs purposes as well as standard working agreements. - level of relationship will dictate the type of contract that is needed - Partnerships or strategic alliances will require a long-term trading partner agreements - which is a type of a bilateral contract.

Corporate social responsibility (CSR)

- Organizational self-regulation that involves adding priorities to an org's business model: the model still focuses on profits, but also defines success as meeting the needs of the community and the environment. Topics of CSR policy: 1. Customer health and safety 2. Employee health and safety 3. Environmental sustainability 4. Maintainability 5. Employment policy 6. Community reinvestment

Step 8: manage multifaceted relationships

- Partner may also be a competitor, a customer, or a supplier. --need the ability to identify, discuss, and track all relationships with a given partner and understand their potential interactions.

Trade exchange supplier risks

- Possibility that option contract may lock up the supplier's capacity - Fewer investments in improving processes due to tighter margins - Possibility of being driven out of business - Possibility that buyers will use the seller's data to get a lower bid elsewhere - Exchange integration costs - Suppliers whose value is not purely dependent upon low price are less likely to participate - Supplier that do not see results may drop the service. -better off building long-term relationships, reserving exchanges to liquidate excess inventory. Whenever they win bids, their goal should be to start a personal relationship with these companies.

Processes enabled by SRM

- Processes enabled by SRM include a long list of SCM innovaions discussed elsewhere in these materials including collaborative design, CPFR, lean and just-in-time, 3PL/4PL partnerships, supplier managed inventory, quick response programs, vendor managed inventory, distributor integration, and collaborative transportation management. --SRM enables any process that requires close, ongoing relationships between buyers and supplier to succeed.

Managing risk

- SC is only as strong as the weakest link - Managers should approach supply uncertainties from a risk management perspective by identifying potential supply risks both within their own org and from suppliers. --org develops means to either avoid the risk or lessen its impact. --allows the org to more accurately understand the risks posed to supply and suppliers by such unforeseen events as emerging technologies, new regulations, or shifts in consumer demands. - requires risk audit and creating risk response plans. - Modern risk management - minimize the risk to the entire channel from having not enough or too much product. --maintaining redundant suppliers, risk-sharing contracts, collaborative planning, requiring suppliers to have contingency plans. - some of the biggest risks companies face lie in the areas of language, etiquette, and work styles - Cultural issues --expect delays and assume differences. --cultural or communication issues will introduce delays no matter ow well-planned the project or how thoroughly they ave researched the credentials and history of the supplier. - moving production offshore requires tremendous amount of time and attention from the supply org and will most likely require additional resources to manage the process, including periodic site visits to ensure that things are going smoothly.

Step 3: Prepare partners

- SRM management team is created to negotiate mutually beneficial contracts with selected suppliers. - systems developed to support contract conformance by both the org and the suppliers. Redefining jobs. --includes a communication and continuous improvement plan. - The lifeblood of the org revolves around communication between customers, employees, contractors, new channels, new customers, suppliers, new markets, demand supply, chain links, and so on. - important to establish the best and most efficient way to communicate about both routine and non-routine issues. ---Routine issues may initially take place once a month for both parties. --non routine issues - parameters must be defined.

Commitment to the relationship

- Significant time and resources are necessary to establish any alliance with a SC partner To ensure ongoing effective and efficient collaboration orgs must create: 1. Common models, techniques, and expectations for spotting, diagnosing, managing, and learning from conflict 2. Structured methods for managing information flow 3. Structure for decision making, including who will make decisions and how they will be communicated throughout the partnering orgs.

Step 2: Develop criteria and enroll partners

- The basic financial strength of the potential supplier is critical for any extended relationship. --ability to pay their suppliers and manage their cash flow will have a direct impact on the quality of service an org receives. - Once criteria is determined, a categorization plan is developed that will be used at the operational level to differentiate preferred suppliers from other suppliers. - a Strategic alliance is proposed to suppliers who have been designated as critical to the org's success in the org's supply plans.

Step 5: Appoint a dedicated alliance manager

- Top management should designate a dedicated relationship manager to oversee and implement a specific methodology for managing the alliance relationships. - EX: critical for financial services company's relations with its independent financial consultants, since the consultants own business is all about maintaining relationships. --need to know that there is someone who values their relationship

Measuring customer satisfaction

- accomplished by discussing the supplier's products or services with internal persons who design, engineer, receive, handle, install, process, assemble, and ship the supplier's product or service. This can help with continual improvement efforts.

SRM services

- allows orgs to initiate strategic sourcing searches or other supplier searches that go beyond arm's length transactions. - Value-added services may include more detailed search and analysis, comparison of RFQs or ITTs, contract negotiation tools and forms, online financial and billing services, comparison shopping functions.. - may also include supplier development, collaborative design, and collaborative planning. Ex: Collaboraive product commerce (CPC) - may also provide member services, security and workflow tools. --personalized Websites or portals for partners in the same way that CRM systems can create personalized pages for customers. --main goal of security is to protect individual files so that confidential information cannot be accessed without prior validation.

External supplier interfaces

- automate transactional interactions with existing suppliers using Internet or electronic data interchange (EDI) links. These interfaces may be indirect links between each party's ERP systems. - full range of transactions between buyer and supplier, including requisitions, PO generation, Tracking, Logistics, Receiving goods, paying customers. - External supplier interfaces also include secure portals for use with SRM services such as messaging boards or collaborative product design. - Portals can also be used to link with suppliers who do not have direct transaction system links (ex. checking order status)

Commitment to change

- begins by recognizing that change is constant and inevitable in today's SC. --EX: high cost of inventory, shrinking margins due to superstore discounters, shorter product life cycles, software that inundates trading partners with data, and the internet, which gives consumers a tremendous new array of choices. - entering any alliance will result in changes within each partner organization - mutual commitment to ongoing change and recognition that continuous change can take place incrementally, not just in colossal jumps. --getting people to change without a crisis driving it can be difficult.

Steps in creating and maintaining an alliance

- commitment alone is not enough. Need commitment into concrete steps that make ongoing success possible. Steps: 1. Align internally 2. Select proper partners 3. Negotiate a win/win deal 4. Establish ground rules 5. appoint a dedicated alliance manager 6. Encourage collaboration 7. Engage in a collaborative corporate mindset 8. Manage multifaceted relationship 9. Conduct pulse checks 10. Plan for change

Controlling errors

- critical in the overall process of preventing future problems. - some orgs implement online compliance sanning and labeling control systems with suppliers that prevent suppliers from printing out package labels and shipping goods unless they comply with the PO or release order rules. --these control points help to minimize the number of shipments that are turned away at the receiving dock or that arrive incomplete

Step 4: Conduct pilot

- designed for a discrete portion of the org's activities.

Auctions

- determine the value of a good or service on the open market. Widding a bid constitutes a contract. --auctions are best for commodities --auctions should be avoided when delivery time, reliability, or quality are important --solely differentiated by price. Types of auctions: 1. Classic or forward auctions - one seller, multiple buyers. 2. Reverse auctions - Suppliers attempt to underbid their competitors 3. Dutch auctions - one seller, multiple buyers for multiple but finite qtys of the same item for sale. 4. Demand management auctions - clearinghouses to liquidate excess supply (ex. hotel rooms) 5. Stock-market style auctions - dynamic pricing based on buy and sell offers.

Virtual trading exchanges

- enable both information integration and collaboration between multiple trading partners.

Commitment to communication

- open and continuous communication regarding joint objectives is vital - need for a dynamic environment in which informaiton flows in both directions on a real-time basis - Successful orgs promote the free flow of information among trading partners.

Internal interfaces (Web-enabled SRM)

- enterprise resources planning (ERP) system and its data warehouse. provide SRM systems with a wealth of information. EX: - Procurement history - Open order file - Operations synchronization - purchasing receives consolidated demand information from manufacturing planning systems and/or advanced planning systems (APS) to synchronize the replenishment requirements of individual plants, subsidiaries, and SC partners. - Accounting - price matching, invoice entry, credit management - Purchasing planning - Future purchasing scheduled against anticipated demand. - Supplier performance measurement - generate specific reports and performance measurements using this function. - Supplier database - data warehouse of all suppliers used in the past or who submitted RFPs/ITT with subsets for approved or preferred suppliers.

Compliance management

- equal importance to strategic sourcing - Defining and implementing strategies to concentrate purchases with preferred suppliers - Monitoring and measuring compliance and identifying off-contract purchases to uncover lost savings opportunities - Channeling findings to management for remediation. - Monitoring and reporting on supplier performance - Auditing supplier pricing for accurate billing - Monitoring contract expirations, executing renewals - Driving continuous process and incremental cost improvements - Establishing baselines for new sourcing initiatives

Step 9: Conduct pulse checks

- formally monitoring the health and trust of the working relationship. - ex: in small group sessions, consultants and company reps each get to report on what is and isn't working and create collaborative solutions.

Supplier performance measurement

- generally performed for a small number of critical data elements such as delivery, reliability, quality, technology, and cost reduction. - Businesses must check the following: 1. Supplier's promptness of response to inquiries 2. Supplier's ability to perform consistently 3. Reliability of SC partners 4. Supplier's commitment to quality assurance 5. Supplier's financial stability 6. Supplier's investment in technology

SRM procurement

- goal is to streamline the procurement proocess for the goods and services necessary to produce products and run the organization. - provides interfaces to online trade exchanges or auctions, as well as additional features for transactional purchasing (ex. shopping tools, payment processing, order status)

Step 1: Align internally

- identify key issues and decisions and involving key stakeholders. --EX: regional managers will want to know how flexible the supplier can be in responding to defferences in local trends. --consider quality control, shipping/delivery logistics

SCOR metrics

- in SRM used to judge individual supplier performance.

Step 2: Select the proper partners

- look beyond strategic and financial fit. Evaluate differences in corporate culture, operating style, and business practices as well. --high level of trust will be required

Alignment with SC needs

- lower total costs and increase profits - consider supplier's technical communications ability so that the supplier can receive real-time information on customer orders and thus reduce SC problems such as the bullwhip effect. - potential suppliers must have business processes and efficencies that complement the strategic goals of the org's SC and they must be able to deliver on their capabilities to provide value for the customer. - Site visits should be considered a requirement before establishing onshore or offshore partnerships - Many orgs struggle to manage the supplier relationship systematically. Attempts to become more systematic are often resisted out of fear of rigidity and bureaucracy.

Supplier search and selection

- lowering the total cost of goods sold is of strategic importance to a company. - a dollar decrease does not have the same impact as a dollar increase in sales. - reducing the costs of materials, labor, or overhead through efficient supply is vital. - Once an organization has applied its search criteria to its supplier search, it will generate a short list of order qualifiers, or suppliers who meet all minimum criteria on technical specifications, price, delivery lead time, and terms of sale. The org may place more or less weight on particular criteria to emphasize strategic priorities.

Trading exchanges

- lowers the cost per transaction and increases market reach for both buyers and suppliers. - A successful exchange will result in faster decision making, lower costs and inventory, and better collaboration, planning and production: Trade exchanges include the following: 1. Supplier/buyer broker services 2. Supplier and product search functions 3. Bidding events 4. Cost-savings identification 5. Access to larger market 6. Supplier identification and support 7. Online catalogs listing products, sales promotions, and qty pricing. 8. Online SRM services including strategic sourcing for direct materials 9. Automated connections 10. Billing and payment processing for faster transfer of funds to suppliers.

Commitment required for a successful alliance

- many alliances fail - many orgs treat the alliance like a merger or an acquisition. -merger is an event and an alliance is a process that requires continual monitoring and attention --orgs that view alliances as events focus too much on the contract or on making the deal. - alliances may fail for other reasons --immature technology --uncertain marketplaces --shifts in corporate strategy --external forces beyond the control of the alliance partners.

Components of an SRM system

- may include both transactional and analytic systems: Components: 1. Strategic Sourcing and RFQ/ITT submission/analysis 2. Procurement of goods and services through internet trade exchanges or auctions 3. Collaborative product design and collaborative planning 4. Purchasing and supplier scheduling using direct system links over the Internet/EDI or using portals 5. Catalog management 6. Supplier databases and rating systems

SUPPLIER SELECTION

- necessary to implement the org's supply plans - Traditional thinking emphasizes making the greatest possible profit for the enterprise without regard to the impact on suppliers. - SC thinking requires a strategic view of sourcing that focuses on the long-term success of all partners along the SC - The pressures in contemporary markets, from both customers and suppliers, necessitate forming deeper relationships for many sourcing solutions. - Once an org knows what it plans to do itself and what it plans to use suppliers for and the level of relationship it desires for each supply need, it engages in the supplier selection process. - Most orgs consider both the total cost of ownership of a supplier's products or services and how these products and services could affect the org's reputation.

Step 6: Monitor and improve

- org implements a framework of metrics to ensure that suppliers are confirming to contractual requirements and delivering the desired impact on the org's bottom line and/or strategic goals. --focus on continuous improvement by both the org and supplier is at the core of SRM. - SRM is a dynamic process where the pursuit of collaborative joint objectives and sharing of innovative ideas can result in the acheivement of profitable common goals - org must monitor its own adherence to the SRM strategy. - avg adoption rates are below 35% for most categories and below 20% of total spending due to failure of orgs to implement and enforce strategically sourced agreements. - Strategic sourcing should be integrated with contract deployment and compliance management. - opportunities for improvement are identified and projects for specific improvements are developed, tested, and implemented.

Step 5: Implement full program

- org revises the annualized contract or trading partner agreement as necessary and implements it fully. --regular planning sessions

Contract performance

- orgs perform contract deployment to get the agreement functioning as intended. --regularly monitor the relationship for supplier responsiveness, on-time delivery, order accuracy, product or service quality, and invoicing and payment accuracy.

Step 10: Plan for change

- partners must recognize and allow for incidental and inevitable changes - partners must plan for the positive changes that need to occur within the alliance. - information shared between partners should enable them to work ever more efficiently with one another.

Supplier co-location

- practice of locating a supplier or multiple suppliers within a single location. - When multiple entities are located in one facility or campus, a primary benefit to the org is highly integrated operations. - refers to bringing together people or groups in related roles for product and process innovation. - SRM develops trust and promote and sustain team ownership for the product. - allows problems to be addressed quickly as they arise in the design, prototyping, and product qualification processes and typically reduces concept-to-customer time. - relationship between an org and supplier shapes the extent of the co-location

Independent public trade exchanges (ITX) or public marketplaces

- public sites where buyers and sellers final overall best price deals

Contract deployment

- purpose is to ensure a smooth transition to new suppliers and successful adoption across the org. - Because an org will continually be adding, removing, and replacing suppliers over time, contract deployment is an ongoing function at an org. Contract deployment activities: - clarifying legal details of new agreement - Communicating with the winning supplier - Promoting the benefits to internal buyers - Loading new contracts into a centralized contract management database - Rapid implementation of order-to-payment procedures - Training of users and suppliers - Validation of supplier performance against KPI - Integrating/deploying transaction management systems - Auditing initial invoices for accuracy and compliance.

Step 6: Encourage collaboration

- requires skills for resolving conflicts, negotiating, solving problems jointly, conducting difficult conversations .

Step 1: Define SRM

- review the corporate, marketing, manufacturing, and supply plan strategies. It must know its goals, resources and limitations before it can decide which suppliers can play roles in corporate strategies.

Supplier rating systems

- setting supplier performance measures and standards - standards can be increased as supplier improves - when implemented, it can monitor quality costs, track timeliness of incoming materials and outgoing shipments, identify areas for improvement, and ultimately contribute to the financial well-being of the org. Various data sources: 1. Conformation rates - data documentation: part number, lot size, number of parts accepted or rejected, reason for any rejections, quality disposition. 2. Number of floor failure events: If a supplier-caused discrepancy is found after a part is shipped to stores or has been installed in assembly, the org needs to adjust the performance index accordingly. 3. Levels or amounts of conditionally accepted materials - materials that do not conform to specs but are accepted through the material review process. 4. Time line performance - difference between PO schedule and actual receipt dates.

CREATING ALLIANCES WITH SUPPLIERS

- strategic alliance - DEF: relationship formed by 2 or more orgs that share information. --to increase the performance of their common SC - alliance development - DEF: strengthens the capabilities of a key supplier - joint venture - DEF: agreement between 2 or more firms to risk equity capital to attempt a specific business objective. --venture can be for one specific project only or a continuing business relationship. --strategic alliance involves no equity - less rigid - traditional purchaser-supplier relationships VS strategic alliances --traditional - one point of interaction (usually buyer and supplier sales rep)

DEVELOPING AND IMPLEMENTING SRM STRATEGIES

- taking proactive steps toward developing and implementing SRM strategies. --to recognize and address all risks relevant to SRM.

Step 7: Engage in a collaborative corporate mindset

- think in terms of the overall good of the alliance rather than the channel master --focus on collaboration and problem solving

Characteristics of a successful alliance

- true relationships 1. Individual excellence - each partner has something to offer 2. Interdependence - strengths are complementary 3. Importance - alliance figures significantly into each partner's business goals and strategies 4. Investment - investment of time, personnel, and resources 5. Information - honest and generous in providing information. 6. Integration - shared operational procedures at different levels. Integration provides SC visibility without sacrificing autonomy. 7. Institutionalization - formal status with clear objectives 8. Integrity - Trust 9. Interpersonal skills - critical component. Especially important in culturally dissimilar global SCs where people have differing perspectives.

Reasons to form strategic alliances

1. Add value to products 2. Enable strategic growth - enable orgs to combine resources to overcome barriers to entry 3. Increase market access - Partnerships that lead to better advertising or increased access to new market channels can be beneficial. 4. Strengthen operations - improve operations by lowering system costs and using resources more effectively. 5. Increase organizational expertise - Partnering with an org that has expertise in a certain area makes it easier to implement new technology but also leaves behind increased knowledge and experience that will benefit the org. 6. Build organizational skills - learning within the org and learn from each other 7. Enhance financial strength - increasing revenue wile sharing administrative costs.

Strategic role tasks

1. Adding value to products by managing supplier relationships 2. Identifying and researching strategic partners 3. Developing certification standards and supplier improvement programs. 4. Negotiating long-term contracts 5. Serving on cross-functional teams to integrate workflows and share data 6. Enforcing compliance with sourcing contracts 7. Assembling and managing the sourcing risk portfolio 8. Managing relationships with strategic sourcing partners 9. Analyzing purchasing data

Steps in implementing SRM

1. Define SRM 2. Develop criteria and enroll partners 3. Prepare partners 4. Conduct pilot 5. Implement full program 6. Monitor and improve.

Web-enabled SRM

1. ERP >Internal interfaces >External Supplier Interfaces >SRM Analytics >SRM Services >SRM procurement

Measuring supplier success and avoiding pitfalls

1. Establish clear performance expectations - must be addressed up front. Formal service level agreement that is updated each year 2. Measure against those performance expectations at regular intervals - needed to capture accurate billing data as well as provide critical information on how suppliers manage their business and process risks. --orgs should institute a policy of reviewing potential suppliers internal controls before entering into a contract. 3. Maintain ultimate responsibility - an org should not relinquish the complete management of the relationship of an outsourced activity. -- highlights increased demand for risk sharing. Partnerships that provide for equal sharing of risk have become a key method for managing new product development and controlling rising operation costs. 4. Coordinate the activities of multiple suppliers and share experience and knowledge 5. Maintain an exit strategy - orgs need to be prepared with a formal backup plan for each key supplier.

Exchange ownership models

1. Independent public trade exchanges (ITX) or public marketplaces 2. Private trade exchanges (PTX) or private marketplaces 3. Consortia trade exchanges (CTX) or consortia-based marketplaces 4. Virtual trading exchanges - private exchanges are expensive - only companies with high transaction volume should consider a private exchange due to lower costs per transaction. --desireable when partners want high security in data exchange. --should determine supplier interest in joining a private exchange. --if the company has market dominance, it cannot gain much from aggregating demand with smaller businesses. - companies with low transaction volume should consider independent, public marketplace to keep costs down or a consortia-based marketplace to consolidate their supplier base with others

Tactical tasks managed by one or more persons

1. Managing supply 2. Issuing POs 3. Tracking orders 4. Resolving discrepancies in orders or accounts 5. Monitoring performance of suppliers

Contract details should include:

1. Pricing - Some contracts set fixed prices with certain price increases allowed based on certain contingencies such as increases in raw materials. 2. Delivery requirements - date, locations, conditions such as how orders will be placed, how a product is to be protected during shipments, modes of shipping. 3. Transfer of ownership (Incoterms) 4. Payment terms - timing, form of payment, currency exchange. 5. Performance criteria 6. Quality Assurance 7. Order requirements - measurements of standard deliveries, qtys that a company wants, due date. 8. Associated incentives and penalties 9. Status reporting - Both parties must establish trust and confidence with each other so that an open exchange of information occurs. 10. Channels for resolving problems 11. Security requirements - Safeguards? 12. Language of contract - correct translation is critical. 13. Contract termination 14. Legal authority

Principled negotiation: 4 Steps

1. Separate the people from the problem - be problem solvers who insist on the prior criteria for long-term gain. 2. Focus on interests, not positions - relate what both parties are interested in achieving and seek to understand. 3. Invent options for mutual gain - seek a time frame in which to study the problem rather than bowing to time-based pressure. 4. Insist on use of objective criteria - principled negotiator guides any disagreement toward deciding upon a fair standard that both parties can agree will be the basis for the decision.

Limitations of strategic alliances

1. Strategic importance - if a purchased component is critical to competitive differentiation or involves proprietary knowledge, it is best to manufacture it in-house. If it cant, then it should form a close alliance with its strategically valuable suppliers. 2. Number of suppliers - if only one supplier, it is more important to keep a close relationship 3. Complexity - interfaces between the component procured and the final product as well as the complexity of the SC itself. 4. Uncertainty - Managing uncertainty through purchasing more than one needs or gambling on quality can be costly strategies. 5. New relationships - alliance must be managed carefully in the beginning until processes and working relationships are established.

SRM analytics

Analytical SRM technology allows users to do the following: 1. Visibility and decision support systems (DSS) 2. Strategic sourcing /RFP analysis 3. Spend analysis - identify who they are buying from , what they are purchasing from each supplier, and when and how it was purchased. 4. Value analysis - seeks to eliminate what is non-value added. Substitution strategies. 5. Performance analysis - measure its procurement performance in terms of cost savings, quality, delivery, price, and overall effectiveness. - provide a global view or purchasing, allowing SRM managers to focus on their strategic procurement practices.

MEASURING SRM

Effective SRM performance measurement systems: 1. Track the performance of all suppliers to some extent, with focus on critical component suppliers or suppliers that have had prior quality issues 2. Collaborate with suppliers on performance measurements, reporting, and improvements 3. Automate key supplier performance measurement activities 4. Standardize supplier performance measurement procedures across the org

Negotiating tactics

Positional-based tactics (traditional): - hard negotiators - view other parties as adversaries to be beaten so they take a position, demand concessions, and give none in return. They threaten, mislead, or pressure the other party. This can endanger long-term success. - Soft negotiators - value agreement to the point that they disclose their bottom line, alter their position, or accept one-sided agreements that involve only concessions. Contracts may be won but this party is left feeling exploited. Principled negotiations (win/win) - start by insisting on several criteria for long-term gain (none of which are typically present in win/lose or lose/win tactics): 1. Negotiations should efficiently solve the underlying issues. 2. Negotiations should preserve or increase positive relationships. 3. Agreements, if reached, should endure, meet both parties' actual needs to the extent possible, resolve conflicts of interest fairly, and be in the community's interests.