Materials Management BUS 3

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Materials ManagementBUS 3 141 Supplier
Relations Week of Apr 23, 2007
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Agenda

• Term Paper
• Understanding Supplier Lead Time and Operations
• Supplier Relations
• Partnerships with Suppliers

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Understanding Supplier Lead Time and Operations
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Suppliers are an extension of the Buyers
Operation
Key Considerations

• Component costs
• Manufacturing and Assembly costs
• Issues and delays
• Lead Times
• Data and Report visibility and timeliness

Converting an item to Buy from Make, or
outsourcing manufacturing to a Third Party, does
not remove the Supply Managers responsibility
to understand and influence the production process
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Elements of Lead Time
A critical requirement for buyers is influencing
supplier Priority
First Buy (No forecast)
Regular Buys (w / forecast)
Pull In open Order(s)
Expedite Delivery
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Lead Time Example Eyeglass Manufacturing
(Surfacing)
Prep
Layout
Coat
Block
Grinding
Glass Fine
First Fine
Glass Polish
Tool Selection
Second Fine
Polish
De-Block Cleaning
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Lead Time Example Eyeglass Manufacturing
(Finishing)
Edge
Edge
Edge
Bevel
Insert
Tint
Test Prep
Inspect
Chem Treat
Drop Ball Test
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Lead Time Example Eyeglass Mfg (Finishing at
Lens Crafters)
Test Prep
Bevel
Edge
Insert
Inspect
Tint

• Days of Lead Time become hours
• Expediting no longer necessary. Value Added
  Activities are co-located, with minimal inventory
  and re-prioritizing queues

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Supplier Relations
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Visits to and from Key Suppliers
Major Objectives to visits to Suppliers

• Understand Major Supply Chain processes
• Production flow
• Planning and priority
• Standard capacity and constraints
• Flex capacity and ability to respond to upside
  and downside requests
• Personalize the relationships
• Associate faces with names
• Future interaction is with a person instead of
  a representative
• First hand observation, instead of receiving
  controlled information
• Ability to see opportunities for new spend

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Visits to and from Key Suppliers
Major Objectives to visits from Suppliers

• Reinforce a customer satisfaction perspective
• Making the effort demonstrates a commitment
• Efficient use of Customer time (no plane trips
  short meetings instead of full day away from
  office)
• Greater understanding of usage / application of
  the item supplied
• Increased mind share for future customer spend
• Personalize the relationships
• Associate faces with names
• Future interaction is with a person instead of
  a representative
• First hand observation, instead of receiving
  controlled information
• Ability to see opportunities for new offerings

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Satisfaction Matrix
From Leenders, Johnson, Flynn, and Fearon,
Purchasing and Supply Management, Thirteenth
Edition, McGraw Hill Irwin
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Actions to Influence Supplier Behavior
Rewards

• Increased spend for good performance
• Working together to solve problems
• Shared benefits in cost savings
• Participation in long term planning

Punishments

• Cancel Orders
• Issue no new orders
• Refuse to accept shipments
• Refuse to pay bills
• Lawsuits, or threats of lawsuits

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Partnerships with Suppliers
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Working with Strategic Partners vs. Transaction
Suppliers
Reward Obtained
Relationship Investment Required
From Leenders, Johnson, Flynn, and Fearon,
Purchasing and Supply Management, Thirteenth
Edition, McGraw Hill Irwin
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Paradigm Shift in Buyer Seller Relationship

• Traditional
• Lowest price
• Specification-driven
• Short-term, reacts to market
• Trouble avoidance
• Purchasings responsibility
• Tactical
• Little sharing of information

• Partnership
• Total cost of ownership
• End-customer driven
• Long-term
• Opportunity maximization
• Cross-functional teams and top management
  involvement
• Strategic
• Both supplier and buyer on both sides share
  short- and long-term plans
• Shared risk and opportunity
• Standardization
• Joint ventures
• Share data

Not Partnership as a Legal Entity, but as a
description of the Relationship
Adapted from Leenders, Johnson, Flynn, and
Fearon, Purchasing and Supply Management,
Thirteenth Edition, McGraw Hill Irwin
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Indications of a Successful Partnership Effort

• Formal communication processes
• Commitment to our suppliers success
• Mutual profitability
• Stable relationships, not dependent on a few
  personalities
• Consistent and specific feedback on supplier
  performance
• Realistic expectations
• Employee accountability for ethical business
  conduct
• Meaningful information sharing
• Guidance to supplier in defining improvement
  efforts
• Non-adversarial negotiations and decisions based
  on total cost of ownership
• Continued desire to do business together

Adapted from Leenders, Johnson, Flynn, and
Fearon, Purchasing and Supply Management,
Thirteenth Edition, McGraw Hill Irwin