Supply Chain Chapter 7

ISO certified suppliers are preferred by procurement departments

- They have to conform 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 - They are easier and quicker for procurement to qualify

Supplier Recognition Programs

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

Benefits of Strategic Partnerships with Suppliers

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 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

An effective supplier certification program should increase the time spent on incoming inspections (T/F)

False

Award-winning suppliers serve as role models for other suppliers and may therefore be exempt from audits and certification programs (T/F)

False

International Organization for Standardization (ISO) is a widely accepted standards organization that certify companies. The certification for Quality is:

ISO 9000

International Organization for Standardization (ISO)

ISO International Standards ensure that products and services are safe, reliable and of good quality

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

An organization's process for evaluating the quality systems of key suppliers in an effort to eliminate incoming inspections can be referred to as?

Supplier Certification

Supplier Evaluation: Weighted Criteria

The Weighted-Criteria Evaluation System: 1) Select the key dimensions of performance mutually acceptable to both customer and supplier. 2) Monitor and collect performance data. 3) Assign weights to each dimension based on importance (total = 100%). 4) Evaluate performance measures between 0 and 100. 5) Score = Dimension rating x weight. Overall score = Sum of individual scores. 6) Classify vendors based on their overall score, -->Certified, Preferred, Acceptable, Conditional, Developmental, Unacceptable, etc. 7) Follow up and take action based on the classification 8) Audit and perform ongoing review (- Categorize suppliers based on performance scores - Meet regularly with each supplier to review performance report (monthly, quarterly, annually) )

Successful supplier relationships involve aligned capabilities. This means the capabilities must be synergistic for maximum benefit (T/F)

True

Supplier Certification

"an organization's process for evaluating the quality systems of key suppliers in an effort to eliminate incoming inspections."

ISO 9000

(certification for quality) addresses various aspects of quality management & quality standards in design, development, production, installation, & service

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

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

Preferred Suppliers Provide

- Product and process technology, and expertise. - Product development and value analysis. - Information on latest trends in materials, processes, or designs. - Capacity for meeting unexpected demand. - Cost efficiency due to economies of scale

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

Supplier Relationship Management (SRM)

-(Involves developing partnerships with key suppliers) -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 Refers to extended procurement processes such as: Execution improvement Sourcing analytics Supplier scorecards Performance monitoring Supplier Development SRM enables companies to identify their most important suppliers. This will result in positive impacts from the supply base on costs, quality, delivery and innovation. SRM is a part of the rollout of Strategic Sourcing Strategy and is typically applied to suppliers who: Provide high volumes of a product/service Provide critical product/service Support many business units of a company or organization Require engineering, manufacturing and/or logistics integration. Involves developing partnerships with key suppliers: -Reducing total costs Innovating new products and services Creating value for both companies Focusing on a small set of critical suppliers Largest impact on profitability Provide most value Critical to firm's success Managing the remaining suppliers based on supply segmentation Segmented based on company's supply goals Manage all suppliers in the segment

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

Benefits of implementing an effective supplier certification program include all of the following:

-Building long-term relationships -Reducing time spent on incoming inspections -Recognizing excellence

Successful Strategic Partnerships

-Involves both parties work together, sharing information and the risks and rewards of the relationship -Long term relationship as opposed to a tactical position focused on short term gains.

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

Keys to Successful Strategic Partnerships

1) Build 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 the extra mile. 2) Shared Vision & 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. 3) 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 4) 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 a relationship, if only one party is happy, then the relationship (i.e., alliance) is not likely to last 5) 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 6) 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 7) Information Sharing & 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 8) 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 9) 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] -->S.M.A.R.T. = Specific, Measurable, Achievable, Relevant, Time-oriented

Trends in Supplier Relationship

1) Close alignment of sourcing with supplier relationship management - Many companies are determining their negotiation strategies by tying them to their category management strategy, and to their supplier relationship goals. 2) Focus on cross-functional engagement - A best practice for strategic supplier relationships involves SRM teams at both the company and at the supplier, each led by a relationship manager, who form a steering committee to lead the process. 3) Focus on innovation - Companies that engage in more innovation with suppliers, report higher ROI. 4) Investment in people & "soft skills" - Treat suppliers with the courtesy and respect. Be candid, and able to disagree without being disagreeable. Hold both sides to the same standards.

Supplier Relationship Management System

1. Automation 2. Integration 3. Visibility 4. Collaboration 5. Optimization

Three Attributes of Supplier Recognition Programs

1. Companies should recognize achievements of 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.

Benefits of Supplier Recognition Programs

1. Motivate Suppliers to Perform Better 2. Improve Supplier Loyalty and Commitment 3. Encourage Suppliers to Adapt to the Company's Culture 4. Helps to Create Entry Barriers for Competitors 5. Encourages Supplier Participation in Product Innovation

Evaluating and Selecting Key Suppliers

When evaluating key suppliers for developing a collaborative relationship, purchase cost is only 1 component and often a minimal one. -->The assumption is that excellent suppliers will be able to drive costs out -->"Squeezing" suppliers to generate a lower annual purchasing spend hurts strategic relationships! but it is very often still done! [Profit Leverage Effect] -Key Supplier Selection is typically conducted by a cross functional team using evaluation forms or scorecards. -->Weighting techniques are used.

Value Engineering

activities help the buyer's company to reduce cost, improve quality and reduce new product development time

ISO 14000

addresses various aspects of environmental management and constantly improve their environmental performance

Supplier certification programs are used to

differentiate strategic supplier alliance candidates from others

Supplier development is all about

providing suppliers with what they need to be successful (improve quality and delivery performance) in the supply chain

Strategic Sourcing partners offer

the opportunity for a company to extend their intellectual capabilities by involving their external partner base in product development (outside partner to help with product development)