Chapter 7 SCM- Supplier Relationship Management

2 important functions of supplier development program

*Provide information*; about products, expected sales growth; suppliers become extensions of customers *Training suppliers*: in application of lean and six sigma quality tools; help them become more efficient

Supplier scorecarding

- a way to track performance metrics; can be associated with various categories, depending on the supplier's role within your enterprise

6. Change management

- companies must be prepared to manage change that comes with the formation of new partnerships - must be able to move forward and change together to be successful

1. Building trust

- companies must earn trust - it's easy to lose - trust that for a small amount of price change or a little mistake, you won't change partners

5. Commitment and Top Management Support

- executive support; top management sets the policies and the direction - without that support, you can't build that relationship at the business branding level

Strategic partnerships *Benefits for suppliers*

- greater visibility into purchasing plans - increased operating efficiencies - longer term contracts - increased scope of business and revenue (VMI--> opportunity to take over other business areas) - lower costs of sales; increased margins - Opportunities to develop pilot and showcase innovative solutions - sustainable competitive advantage

Why develop suppliers?

- lower supply chain total costs - increased profitability for all supply chain participants - increased product quality - increased reliability at each point in supply chain

9. Performance metrics

- maintain scorecards and agree upon the categories in the scorecards - a way to take activities into value generating information - measures related to quality, cost, delivery, and flexibility - Specific, Measurable, Achievable, Relevant, Time-oriented measures

3. Personal relationships

- one-to-one relationships at all levels of the organization

7. Information sharing and lines of communication

- open, formal and informal lines of communication - they need to tell you if there is a problem - confidentiality must be maintained

Strategic partnerships *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 - sustainable competitive advantage

Benefits of supplier certification programs

- reduce amount of time and resources necessary for buyer to conduct inspections

2. Shared vision and objectives

- share the same vision; objectives are both clear and mutually agreeable - focus must move beyond tactical issues and toward a more strategic path to corporate success

8. Aligned capabilities

- shouldn't both be great at the same thing

SRM seeks to improve:

- sourcing analytics - execution improvement - supplier scorecards - performance monitoring - supplier development

What is a supplier certification program?

- supplier certification can differentiate strategic alliance candidates from others - buyers can monitor quality assurance methods and specify the type of acceptance sampling and statistical process control - companies may develop internal certification programs or require external certifications (IS0)

Supplier categories (that come out of scorecard)

1. Unacceptable: immediate action or drop 2. Developmental: specific areas need improvement 3. Acceptable: meets all performance target 4. Preferred: top performance gain additional business/expand

Keys to successful strategic partnerships

1. build trust 2. shared vision & objectives 3. personal relationships 4. mutual benefits and needs 5. commitment and top management support 6. change management 7. information sharing and lines of communication 8. aligned capabilities 9. performance metrics

Trends in supplier relationship management

1. close alignment of sourcing with supplier sourcing management 2. focus on cross functional engagement-- SRM teams both at the company and at the supplier 3. focus on innovation -- report higher ROI 4. invest in people and soft skills (treating suppliers with courtesy and respect)

Meetings with each supplier

1. current performance vs previous scores for each category 2. agreed action plan to address deficiencies and timing of implementation 3. business expansion for top performers

Supplier Development: process steps

1. identify critical products and services 2. identify critical suppliers 3. form a cross functional team to work with supplier 4. meet with supplier's top management 5. identify key development needs and projects 6. define details of the agreement and action plan 7. monitor the status of projects and action plans and modify if necessary

Recognition impacts on suppliers

1. motivates them 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 fro the competitors 5. encourages supplier participation in product innovation

Supplier Certification

1. organization's process for evaluating the quality systems of key suppliers in an effort to eliminate incoming inspections 2. important for total quality management system; reducing the need for final quality inspections; predictable conformance to requirements - do the inspection on their side so you don't have to do it yourself

Weighted criteria evaluation system

1. select dimensions of performance 2. monitor and collect data 3. assign weights to each dimension (must add up to 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 7. follow up and take action 8. audit and perform ongoing review

ISO 9000

Quality standards and quality management - quality standards in design, development, production, installation, and service - TQM principles including strong customer focus and motivation and implication of top management

Supplier Development

The better the supplier gets, the better return comes back to you

ISO 14000

address environmental management, reducing energy consumption, promoting community benefits and activities

Supplier management system

enables process of supplier relationship management - technologies are available to support development - they are only as good as the information put in

Sourcing analytics

i.e. spend analysis data; it's only as good as the decisions that can come out of it

Early supplier involvement

key suppliers become more involved in the internal operations of the buyer's company - especially with respect to new product and process design, concurrent engineering, and design for manufacturability

Execution improvement

sourcing and procurement execution

Value engineering

supplier works closely with customers during product development to improve quality and reduce new product development time

Supplier development

technical and financial assistance given to existing and potential supplier

Performance monitoring

tool that enables end users, administrators, and organizations to gauge and evaluate the performance of a given system

What is a strategic partnership

- *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 - strategic=long term view (business planning discussions)

What does ISO (and other external certifications do)

- conform to an externally defined and industry wide set of standards - formal processes in place - no bias or influence - must be re certified every 3 years - they are easy and quicker for procurement to qualify

Relevant performance metrics

- cost performance - product quality - delivery performance - financial stability (of the supplier... this isn't done enough) - Compliance to contractual requirements and standards - participation in process improvement and product development efforts - support of company ethics and sustainable products

Supplier Relationship Management (SRM)

- discipline of strategically planning for, and managing, all interactions with third party organizations in order to maximize value - an approach to defining what they need and want from a supplier and establishing and managing the company-to-company link to obtain those goods

International Organization for Standardization (ISO)

- ensures that products and services are safe - strategic tools that reduce costs by minimizing waste and errors - help companies access new markets, level the playing field for developing countries; facilitate free and faire global trade - ISO 9000: quality management - ISO 14000: environmental management

What must you do when evaluating and selecting key suppliers?

- evaluate ALL costs - don't just "squeeze" suppliers to generate a lower annual purchasing spend; it hurts strategic relationships - use weighting techniques

Supplier evaluation

- process to identify best and most reliable suppliers - sourcing decisions are made on facts and not perception - frequent feedback can help avoid surprises and maintain good relationships - opportunity for the customer to get feedback from the supplier as well; improves overall relationship

Criteria commonly used in certification

- product quality rates - non-product issues - no significant negative incidents - recognized agency certified; passing audits - fully documented process - stable process with proper controls - supplier's financial health

4. Mutual benefits and needs

- win-win relationships - everyone should be succeeding

What does SRM entail?

1. Develop partnerships with key suppliers (large amount of spend, impact profitability, may be critical) 2. Focus on a small set of critical suppliers (without them, you can't be successful) 3. Manage the remaining supplier based on supply segmentation

What kinds of suppliers are Strategic Sourcing Strategies applied to?

1. provide high volumes of a product/service 2. provide critical product/service 3. support many business units of a company or organization 4. require engineering, manufacturing, and/or logistics integration (may be necessary for future products, even if it is not in high volume)

SRM key points for implementation

1. automation handles routine transactions 2. integration spanning multiple departments, processes, software apps 3. visibility of information and clear and concise process flow; data, analytics, and reporting is available 4. more collaboration through info sharing 5. optimize processes and decision making (less resources on transaction processing)

Supplier Recognition Programs (3 attributes)

1. recognize and celebrate achievements 2. exemplify true partnerships, continuous improvement, org. commitment, excellence 3. these suppliers serve as role models