Supply Chain CREATING AND MANAGING SUPPLIER RELATIONSHIPS

Five key points of an SRM system

1. Automation handles routine transactions. 2. Integration spans multiple departments, processes, & software applications. 3. Visibility of information & process flows 4. Collaboration through information sharing. 5. Optimization of processes & decision making.

Strategic supplier alliances

Alliance development eventually extends to a firm's second-tier suppliers, as the firm's key suppliers begin to form their own alliances.

From the supplier's perspective -

Avoids ill-advised customer orders . Supplier decides inventory set up & shipments. Opportunity for supplier to educate customers about other products.

Information Sharing & Lines of Communication

Both formal & informal lines of communication should be set up to facilitate free flow of information. Confidentiality of sensitive information must be maintained

Shared Vision & Objectives

Both partners must share the same vision & have objectives that are not only clear but mutually agreeable. The focus must move beyond tactical issues & toward a more strategic path to corporate success.

Collaborative negotiations (aka integrative negotiations)

Both sides work together to maximize the outcome or create a joint optimal result. Requires open discussions and a free-flow of information between parties.

Co-managed inventories

Buyer and supplier reach an agreement regarding inventory . Preferable for high value items,

Continuous Improvement

Buyers & suppliers must be willing to continuously improve their capabilities in meeting customer requirements of cost, quality, delivery, & technology \.

Build intangible assets

By further enhancing brand and reputation through social social and environmental responsibility

Reduce costs

By increasing resource efficiencies and rethinking transportation and distribution systems

Manage risk

By managing brand and reputation, meeting regulations, and capturing sustainability-conscious customers

Grow revenues

By new sustainable product introduction

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

Change Management

Companies must be prepared to manage change that comes with the formation of new partnerships

Relationship Capabilities Performance Metrics

Companies must develop cross-functional team capabilities.

Three Attributes -

Companies should recognize & celebrate the achievements of their best suppliers. Award winners exemplify true partnerships continuous improvement, organizational commitment, & excellence. Award-winning suppliers serve as role models for other suppliers.

Outsourcing allows a firm to -

Concentrate on core business activities . Reach its sustainability goals.

Ethical Policies should include -

Determining where all purchased goods originated and how they were made. Knowledge of the suppliers' workplace principles. Inclusion of ethics as a performance rating.

ISO 9000

Developed by International Organization for Standardization (ISO) - series of management & quality standards in design, development, production, installation, & service. Companies wanting to sell in the global market seek ISO 9000 certification.

Strategic sourcing

Development of ethical and sustainable sourcing initiatives. Managing and improving supplier relationships and capabilities.

The Supplier Ethical Data Exchange (Sedex)

Focuses on responsible and ethical business practices. Provides reports to help industrial buyers reduce risks associated with outsourcing .

Criteria Used in Certification Programs

Fully documented process & quality system with cost controls & continuous improvement capabilities. Supplier's processes stable & in control ,

Criteria Used in Certification Programs

ISO 9000/Q9000/14001 certified or successfully passing a recent, on-site quality system evaluation, Mutually agreed-upon set of clearly specified quality performance measures.

Strategic sourcing

Identification and selection of environmentally and socially conscious supplier . Monitoring and rewarding supplier performance.

Supplier development

Identify critical products & services. Identify critical suppliers not meeting performance requirements. Form a cross-functional team.

Strong supplier partnerships

Important to achieving win-win competitive performance for the buyer and supplier -- these require a strategic perspective as opposed to a tactical position

Ethical and sustainable sourcing

Increasing number of global competitors. Demands by customers for companies to become more ethically and environmentally focused. Rising costs of fuel and materials.

Ethical Policies should include -

Independent verification of vendor compliance. Report of supplier compliance to stakeholders. Provision of detailed ethical sourcing expectations to suppliers ,

Strong supplier partnerships

Involve "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" (ISM)

Personal Relationships

It is people who communicate & make things happen

Functional Products

MRO items & other commonly low profit margins with relatively stable demands & high levels of competition

Continuous Improvement

Making a series of small improvements over time results in the elimination of waste in a system.

You can't improve what you can't measure

Measures related to quality, cost, delivery, & flexibility are used to evaluate suppliers.

Benchmarking

Measuring what other businesses do best and matching their performance is an effective approach to improving supply chain performance.

Supplier development

Meet with top management of supplier, Rank supplier development projects. Define details of Agreement. Monitor status & modify strategies.

Criteria Used in Certification Programs

No incoming product lot rejections (e.g., less than 0.5 percent defective) for a specified time period. No incoming non-product rejections (e.g., late delivery) for a specified time period. No significant supplier production-related negative incidents for a specified time period.

Mutual Benefits & 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, & if only one party is happy, then the marriage is not likely to last

Advantages of Supplier co-location or JIT II

Purchasing organization gets the use of a cost-free employee who understands their particular problems and requirements. Supplier gets the security of future purchases .

Distributive negotiations

Refers to a process that leads to self-interested, one-sided outcome

Supplier Relationship Management (SRM)

Refers to streamlining the processes and communication between buyer and supplier using software applications manage processes more efficiently and effectively.

Benefits derived from automating procurement activities

Significant cost savings as buyers move toward managing processes by exception

sourcing function

Sourcing or purchasing function's performance are periodically monitored against set standards, goals, and/or industry benchmarks.

Framework for ethical and sustainable sourcing strategy development -

Step 1 - Establish corporate ethical and sustainable sourcing policies Step 2 - Train purchasing staff and communicate policies to suppliers and customers

Framework for ethical and sustainable sourcing strategy development -

Step 3 - Get started. Prioritize items based upon ethical and sustainability opportunities and ease of implementation. Step 4 - Develop performance measurement system.

Framework for ethical and sustainable sourcing strategy development -

Step 5 - Monitor progress and make improvements Step 6 - Expand focus to include other departments

From the buyer-firm's perspective -

Supplier tracks inventories. Determines delivery schedules and order quantities ,

Supplier co-location or JIT II

Supplier's employee is embedded in buyer's purchasing department to forecast demand, monitor inventory & place orders with access to sensitive files & records

Vendor managed inventory (VMI) -

Suppliers manage buyer inventories to reduce inventory carrying costs & avoid stockouts for buyer

Supplier Evaluation & Certification

Suppliers should be allowed to provide constructive feedback to the customer. An extension is supplier certification: an organization's process for evaluating the quality systems of key suppliers in an effort to eliminate incoming inspections.

sourcing function

Surveys or audits can be administered as self-assessments among purchasing staff as part of the annual evaluation process.

Resources for learning about & implementing sourcing practices

The Center for Advanced Purchasing Studies . Supply-Chain Council. Institute for Supply Management,

Monitoring Supplier Relationships

The organization should have a firm grasp of the key issues surrounding supplier relationships which may include

Keys to Successful 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, &, in short, go to the extra mile.

You can't improve what you can't measure

You can't improve what you can't measure

Value engineering

activities help the firm to reduce cost, improve quality & reduce new product development time

Analytic SRM

allows the company to analyze the complete supplier base.

Ethical Trading Initiative (ETI)

an alliance of organizations seeking to take responsibility for improving working conditions and agreeing to implement the ETI Base Code

Strategic alliance development

an extension of supplier development refers to increasing a key or strategic supplier's capabilities.

Ethical and environmental certifications

are used by various organizations to identify rogue suppliers and suppliers who fail to certify according to ethical requirements

Supplier certification programs

are used to identify strategic supplier alliance candidates

Benchmarking data regarding sourcing practices

can be obtained in any number of ways, both formal & informal.

Innovative Products

characterized by short product life cycles, volatile demand, high profit margins, & relatively less competition

SRM Software Suppliers -

ecVision, JDA Software Groupd Inc, Oracle SAP

Skill set requirements of purchasing professionals

have been changing. Purchasing personnel must today exhibit world-class skills such as

Early supplier involvement (ESI)

highly effective supply chain techniques where key suppliers become more involved in the internal operations of their customer, which may include

Punishment

is a negative reward, may be to reduce future business; or a billback penalty equal to the incremental costs resulting from a late delivery or poor quality

Green purchasing

is aimed at ensuring products or materials meet environmental objectives e.g. waste reduction, reuse and recycling

Total cost of ownership (TCO),

is made up of all costs associated w/acquisition, use, & maintenance of a good or service

Supply base rationalization (AKA supply base reduction or supply base optimization)

is often the initial supply chain management effort

sourcing function

is one of the most value-enhancing functions in any organization

Ethical Sourcing

is that which attempts to take into account the public consequences of organizational buying or bring about positive social change through organizational buying behavior

Sustainability

is the ability to meet current needs of the supply chain without hindering the ability to meet future needs in terms of economic, environmental, and social challenges

Business Ethics

is the application of ethical principles to business situations

Transactional SRM

is used to track supplier interactions such as order planning, order payment and returns

Strategic sourcing

managing the firm's external resources to support firm's long term goals.

Fair trade product

manufactured or grown by a disadvantaged producer in a developing country that receives a fair price for their goods

Rewarding suppliers

provides an incentive to surpass performance goals

Strategic supplier alliances

result in better market penetration access to new technologies & knowledge, & higher return on investment

Supports the

three P's - people, planet, and profit

Corporate Social Responsibility (CSR)

) is the practice of business ethics

Strategic supplier agreements can reward suppliers by allowing

A share of the cost reductions. More business and/or longer contracts. Access to in-house training seminars & other resources. Company & public recognition.

Buyer-supplier partnerships are easier with a rationalized supply base & result in

1.Reduced purchase prices. 2.Fewer supplier management problems. 3.Closer & more frequent interaction between buyer & supplier. 4.Greater levels of quality & delivery reliability.

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. Evaluate performance measures between 0 & 100.

Supplier Evaluation & Certification

A process to identify best & most reliable suppliers Sourcing decisions are made on facts & not on perception. Frequent feedback can help avoid surprises & maintain good relationships.

Cost-controlling activities include

1. Reducing supply base. 2. Negotiating global agreements. 3. Adopting new purchasing technologies.

Greater procurement visibility from using SRM software also translates into

1. smoother processes. 2. reduced product development. 3. faster cycle times . 4. streamlined purchasing. 5. improved time to market. 6.reduced inventory costs.

Purchasing personnel must today exhibit world-class skills such as -

2.Negotiating contracts. 3. Selecting suppliers. 4. Managing supplier. 5.relationships. 6.Controlling costs.

The Weighted-Criteria Evaluation System

4. Multiply dimension rating by weight & sum of overall score. 5. Classify vendors based on their overall score: Unacceptable, Conditional, Certified, & Preferred 7.Audit & perform ongoing certification review.

Supplier development

A buyer's activities to improve a supplier's performance and/or capabilities based on the following approach -

ISO 14000

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

You can't improve what you can't measure

A multi-criteria approach is best