Strategic Management of Suppliers

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Strategic Management of Suppliers

• Maintaining Efficient
• Manufacturing Options

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Session Objectives

• Share the rationale for Strategic Supplier
  Management (SSM)
• Define an approach for SSM
• Illustrate tools that can be used for SSM

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What is Strategic Supplier Management?
SSM Rationale

• Strategic Supplier Management (SSM) is
• The systematic, enterprise-wide assessment of
  suppliers assets and capabilities with respect
  to overall business strategy
• Determination of what activities to engage in
  with different suppliers
• Planning and execution of all interactions with
  suppliers in a coordinated fashion across the
  relationship lifecycle,
• To maximize the value realized through those
  interactions

Source Adapted from Maximizing the Value of
Supplier Relationships
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Why we need SSM
SSM Rationale

• Increased outsourcing and reliance on suppliers
• Globalization of business and of supply chains
• Greater complexity in managing suppliers
• Increased supply risks
• View of suppliers not only as a cost, but also as
  a strategic input to our bottom line

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Benefits of SSM
SSM Rationale

• Align supplier capabilities with business
  requirements
• Improve supplier capabilities to increase value
  for the Company
• Achieve cost reduction targets or service level
  objectives
• Collaborate to meet continuous improvement
  objectives
• Reduce inventory levels (in house and at supplier
  locations)
• Accelerate time to commercial manufacturing
• Implement frameworks to monitor environmental,
  social responsibility or supplier diversity
  objectives

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How do you establish a SSM program?Getting
Started
SSM Approach

1. Secure active support from leadership
2. Identify participants (by commodity, spend
   category, and site)
3. Link supplier goals to corporate goals
4. Encourage and facilitate communications between
   parties
5. Create formal documents and processes to capture
   results

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Which suppliers should you focus on?
SSM Approach
Core, Strategic
High Volume/ Spend
Sole Source/ Critical
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Tiers help segment suppliers
SSM Approach
Higher Tier Suppliers Lower Tier Suppliers
Global resource coordination Local or regional supply base
Multi-level communication network Site-specific resource and communication coordination
Joint development of shared goals Effective and efficient transactions
Aligned technology and innovation road-mapping Independent goal setting
Long-term focused Short term planning horizon
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Illustrative Supplier Segmentation Criteria
SSM Approach
Criteria Area Specific Criteria Evaluated
Financial Annual spend Expected change in spend Switching costs
Risk Supply market profile Approved second source status Failure impact
Opportunity Opportunity to harness incremental value Supplier willingness to engage in SSM Supplier cultural alignment
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Once you have selected your suppliers, what
should you measure?
SSM Approach

• Quality
• Technology
• Delivery
• Service
• Cost

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Quality Metric Objectives
SSM Approach

• Quality goal of zero defects
• Defect free raw materials, parts, assemblies and
  services
• Quality expected to be achieved through
• Superior design
• Continuous improvement
• Process, test and inspector controls
• Reduced product variability
• All materials must be fit for intended use

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Sample Quality Metrics Goals
SSM Approach
Incoming Inspection
95 acceptance rate
Supplier Corrective Action Request
Response deadline and action plan
Supplier Audit Results
Documented audits and scoring mechanism
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Technology Metric Objectives
SSM Approach

• Demonstrated commitment to technology to meet
  current and future needs
• Proven thought leadership
• Tangible benefits delivered through technological
  advances
• Reduced costs
• Reduced cycle time

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Sample Technology Metrics Goals
SSM Approach
Of Revenue Spent On Technology
Within top quartile of peer set
Innovation Awards
Nationally or globally recognized within industry
Documentation Compliance
ISO certification, etc.
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Delivery Metric Objectives
SSM Approach

• Accurate delivery quantity
• Timely delivery shipments
• Lead time stability/reduction

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Sample Delivery Metrics Goals
SSM Approach
No tolerance for over/under shipments
variance from forecast to actual
of out of stocks Duration of plant closures or
line delays due to late shipments
On time delivery
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Service Metric Objectives
SSM Approach

• Response time for normal inquiries
• Engineering samples and material specifications
• Price and availability
• Repair and maintenance
• Communication of process changes and/or quality
  problems before they happen
• Accurate bill of materials and invoices

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Sample Service Metrics Goals
SSM Approach
Rapid response time for standard issues
24 hours to provide response
Account management plan, relationship map,
escalation plan
Proactive communications
Zero error rate in deliveries to P.O.
specifications
Accurate billing
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Cost Metric Objectives
SSM Approach

• Best price for product/service
• Joint commitment to cost reduction programs
• Transparency

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Sample Cost Metrics Goals
SSM Approach
Breakdown of cost components Cost plus pricing
models Benchmark rates
Best price
Gain sharing agreements of revenue
Annual cost reduction goal
Pass through invoices Guaranteed profit
Pricing Transparency
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Best Practices In SSM
SSM Approach

• Common Processes/Tools
• Performance Improvement Action Item Tracking
• Supplier Satisfaction Survey
• Formal Issue Escalation Process
• Trigger Points for Elimination of Underperforming
  Suppliers
• Tiered Awards and Incentives Program

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SSM Formats
SSM Approach
Top to Top
Quarterly Business Reviews (QBRS)
Continuous Improvement
These SSM formats have different audiences and
objectives
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Audiences and objectives for different SSM formats
SSM Approach
Objectives
Audience
Top to Top
Executive leaders
Share vision
Quarterly Business Reviews (QBRS)
Operational relationship owners
Maintain accountability
Continuous Improvement
Set goals Evolve
All participants
Each SSM format has its own tools
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Tools to execute Top to Tops
SSM Tools

• Format In person
• Frequency Annually
• Critical Success Factors
• Appropriate participation
• Clear agenda and priorities
• Agreed outcomes and actions

Top to Top
Quarterly Business Reviews (QBRS)
Continuous Improvement
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Example Biotech Firm Uses Annual Supplier Risk
Assessments To Inform SSM Plan
SSM Tools
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Tools to execute QBRs
SSM Tools

• Format In person or telecon
• Frequency Quarterly
• Critical Success Factors
• Functional participation
• Metrics and performance data
• Remediation and action plan
• Links to incentive compensation (as appropriate)

Top to Top
Quarterly Business Reviews (QBRS)
Continuous Improvement
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Some form of scorecard data is required
SSM Tools
Green No major issues exist
75 or greater average score in category
Yellow Some issues exist within this category,
but have been identified and are being reviewed/
addressed
50 - 74 average score in category
Red Issues exist within the scope of the
category
Issues are persistent/ reoccurring, and are
not being resolved in a timely manner to
satisfaction
Below 50 average score in category
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Sophisticated SSM platforms exist
SSM Tools
Illustration of Ariba SSM tool
The data you collect will vary by category and
need
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In these QBRs, you must document agreed upon
actions and outcomes
SSM Tools
Illustrative corrective action plan from QBR
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Tools to execute QBRs
SSM Tools

• Format Various
• Frequency Ongoing
• Critical Success Factors
• Anyone can generate ideas
• Document and track progress against them
• Delineate between suppliers who do and dont
  participate

Top to Top
Quarterly Business Reviews (QBRS)
Continuous Improvement
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Sample Continuous Improvement Opportunity Plan
SSM Tools
Illustrative Continuous Improvement Plan
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SummaryStrategic Supplier Management

• Start with your most important suppliers
• Agree on format, frequency and type of SSM
  program
• Generate appropriate participation
• Execute consistently
• Promote success and outcomes to broaden
  participation