Supply Chain Ch. 7

ISO 14000

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

Supplier evaluation

-A process to identify best and most reliable suppliers -Sourcing decisions are made on facts and not on perception (through the use of defined criteria) -Frequent feedback can help avoid surprises and maintain good relationships. (Hold regular review meetings) -Suppliers should be allowed to provide constructive feedback to the customer

ISO 9000

-A series of management and quality standards in design, development, production, installation, and service. -Companies wanting to sell in the global market seek ISO 9000 certification.

Purpose of supplier development programs

-Aimed at improving suppliers performance, not bullying them into charging less or simply auditing and rewarding them. -Is all about providing suppliers with what they need to be successful in the supply chain.

Supplier Certification programs

-An element for building a strong strategic supplier partnership -Administration requires planning and long-term attention

Certificate of Analysis (COA)

-Buyer trains supplier on approved test methods so that supplier can test product before shipment -Buyers may then opt to only test items periodically on incoming inspection rather than with each delivery or lot, providing that the periodic testing confirms the supplier's results.

Benefits of ISO

-Greater market potential -Compliance to procurement bids -Improved efficiency and cost savings -Higher level of customer service -Heightened staff moral and motivation

Benefits for strategic partnerships for suppliers

-Greater visibility into buyer's purchasing plans -Increased operating efficiencies -Longer term buyer commitments; greater predictability of future business -Increased scope of business and revenue -Lower cost of sales; increased margins -Opportunities to develop, pilot, and showcase innovative solutions -Sustainable competitive advantage

Strong supplier partnerships

-Important to achieving win-win competitive performance for the buyer and supplier -Require strategic perspective as opposed to a tactical perspective -Working together to the mutual benefit of both parties, sharing relevant info and the risks/rewards of the relationship

Goals of supplier development programs

-Lower supply chain total cost -Increased profitability for all supply chain participants -Increased product quality -Near-perfect on-time-delivery at each point in the supply chain

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 in meeting customer requirements

Strategic sourcing partners

-Offer the opportunity for a company to extend their intellectual capabilities by involving their external partner base in product development.

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 like a marriage, and if only one party is happy, then the marriage is not likely to last

Benefits for Strategic Partnerships 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 -Preferred access to supplier ideas -Increased innovation from and with suppliers, leading to lower costs and incremental revenue -Sustainable competitive advantage

Important functions of supplier development program

-Providing information about products, expected sales growth, etc. Suppliers need to become extensions of their customers. -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.

Criteria for an Internal certification program

-Supplier has no incoming product lot rejections (i.e. <0.5% defective) for a specified time period. -Supplier has no incoming non-product rejections (i.e. late delivery) for a specified time period -Supplier has no significant supplier production related incidents for a specified time period -Supplier is ISO 9000 certified or has successfully passed a recent on-site quality system evaluation -Supplier consistently meets a mutually agreed-upon set of clearly specified quality performance measures -Supplier has a fully documented process and quality system with cost controls and continuous improvement capabilities -Supplier's processes is determined to be stable and in control

Supplier performance metrics

-Supplier price and cost performance -Product receipt quality -Delivery performance -Financial stability -Contractual and standard compliance -Participation in product development -Cooperativeness in third-party production management -Support of both ethics and sustainable practices

International Organization for Standardization (ISO)

-The world's largest developer of voluntary international standards. -Founded in 1947, today has members from 163 countries and about 150 people working full time for the Central Secretariat in Geneva, Switzerland. -Highly sought after as it represents achieving and maintaining a standard of excellence verified by an independent third party organization

Reasons why ISO is preferred

-They have to conform to an externally defined and industry developed set of standards for quality and delivery of service -They are usually more _______?_____ supply chain information -They welcome building relationships with their customers -They have formal processes in place for continual improvement of their products, services, and processes -They are easier for procurement to qualify and get certified quicker -Certification is done by an external (not subject to bias) agency -Firms have to be re-certified every three years

Application of SRM

-Usually part of the rollout of Strategic Sourcing and is typically applied with suppliers -Providing high volumes of a product/service -Providing lesser quantities of a crucial product/service -That serve many business units of a company or organization -Where intensive engineering, manufacturing and/or logistics interaction is essential

Five considerations for SRM system

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. Optimization of processes and decision making

Keys to successful strategic partnerships

1. Building trust 2. Shared vision and 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. Capabilities 9. Continuous improvement 10. Performance metrics

Trends in SRM

1. Close alignment of sourcing with SRM 2. Focus on cross-functional engagement 3. Focus on innovation 4. investments in people and "soft skills"

Attributes of supplier recognition programs

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.

ISO 9000 principles

1. Customer focus: understand current and future customer needs 2. Leadership: establish unity of purpose and direction of the organization 3. Involvement of people: people are the essence of an organization 4. Process approach: a desired result is achieved through a managed process 5. Systems approach to management: managing interrelated processes 6. Continual improvement: performance improvement is a permanent objective 7. Factual approach to decision making: decision is based on facts/data 8. Mutually beneficial supplier relationship: interdependent benefits create value for both an organization and its suppliers

Steps in supplier development process

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

Benefits of supplier recognition programs

1. Motivate suppliers to perform better. 2. Help to improve supplier loyalty & 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

Benefits of Supplier Certification Programs

1. Reducing the amount of time and resources necessary for the buyer to conduct inspections of products and materials from certified suppliers. 2. Building long-term relationships 3. Decreasing the supplier base 4. Recognizing excellence

Weighted-Criteria Evaluation system

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

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.

Supplier recognition programs

A program to recognize suppliers who achieve the high performance standards necessary to meet customer expectations. -The success of the business can depend on the quality and performance of the company's suppliers. -Recognize their achievements and reward them for their exceptional performance and services -Will make major contributions to the organization, its suppliers, and to its customers and stakeholders. -If a company is going to keep and utilize a supplier, there should be a motivation plan that reaches them.

Certified supplier

A source that through prior experience and qualification can provide material of such quality that it needs little receiving inspection/test before going into approved stock or into the product process.

Value engineering

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

Information sharing and lines of communication

Both formal and informal lines of communication should be set up to facilitate the free flow of information -Confidentiality of sensitive information must be maintained

Shared vision and objectives

Both partners must be on the same page 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

1. Motivate suppliers to perform better

Can motivate suppliers to excel in terms of their quality, pricing and delivery commitments.

Commitment and 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 in agreement with change that comes with the formation of new partnerships

Focus on innovation

Companies that engage in more innovation with suppliers, report higher ROI.

Plan

Identify an opportunity and plan for change

Goal of SRM

Identifying and measuring key strategic suppliers Improving profits and reducing costs using tools such as: -Sourcing analytics -Sourcing execution -Procurement execution -Payment and settlement -Supplier score-carding -Performance monitoring

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

3. Encourage suppliers to adapt to the 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 to create entry barriers for competitors

If the suppliers trust the company, they may be more inclined to sign deals of exclusivity with the company for certain crucial components.

Do

Implement the change on a small scale

External certification

International Organization for Standardization

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.

Capabilities

Key suppliers must have the right technology and capabilities to meet cost, quality, and delivery requirements in a timely manner (current and future)

Total cost of ownership

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

Close alignment of sourcing with SRM

Many companies are determining their negotiation strategies by tying them to their category management strategy, and to their supplier relationship goals.

Supplier evaluation performance

Monitor and provide feedback on supplier performance at each stage of the evaluation process.

Building 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 -Earned, easily lost and almost impossible to regain once lost

Continuous improvement process

Plan Do Check Act

Reason for SRM system

Provides a more comprehensive and objective view of a supplier(s) performance -Helps in identifying and addressing supplier performance issues. -Used to help make sourcing decisions

Performance metrics

Quantifiable indicators used to assess how well an organization or business is achieving its desired objectives -Measures related to quality, cost, delivery and flexibility to evaluate suppliers -Need to be understandable, easy to measure and focused on real value-added results SMART -Multi-criteria approach is best (ie scorecard) -Total cost of ownership

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.

Acceptable

Require a plan from these suppliers outlining how they will achieve preferred status 70 to 89

Developmental

Require corrective actions from these suppliers on how they will achieve acceptable level. Look for alternative suppliers if these do not achieve acceptability within a fixed period of time, e.g., 3 months. 0-69

Personal relationships

Strategic partnerships begin with the development of personal relationships between key people at each company -It is people who communicate and make things happen

2. Help to improve supplier loyalty and commitment

Supplier support is important to ensure that customer delivery commitments are maintained.

Supplier relationship management system

Technologies available to support development -Can only be implemented in line with the other necessary business process changes. -Part of the process, but not the whole process by itself

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

Supplier development

The technical and financial assistance given to existing and potential suppliers to improve quality and/or delivery performance. -Can be described as a buyer's activities to improve a supplier's capabilities -Leverages a supplier's knowledge and the technology that they use to produce the commodity

Investment in people and "soft skills"

Treat suppliers with courtesy and respect. Be candid, and able to disagree without being disagreeable. Hold both sides to the same standards.

Squeezing suppliers

Trying to generate a lower annual purchasing spend hurts strategic relationships but it's often done because of Profit Leverage effect

Key supplier selection

Typically conducted by a cross functional team using evaluation forms or scorecards. -Weighting techniques are often used

Check

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

Evaluating key suppliers

When developing a collaborative relationship, purchase cost becomes relatively less important. -Assuming that excellent suppliers will be able to drive costs out

Preferred

Work with these suppliers in maintaining a competitive position and on new product development 90-100