Best Practices Consortium Supply Chain Best Practices Consortium Supplier Collaboration Executive Seminar Track 1, Session E September, 2006

Scope This session covers supplier/vendor collaboration and compliance processes and practices. Supplier/Vendor Initiatives: What improvement initiatives are important? Formal Agreements: Written guidelines, Service Level Agreements (SLAs), terms of agreements and feedback requirements. Performance Metrics and Scoreboards: What performance is measured? What are levels of performance, accountability, compliance program success rates and impact of compliance on supply chain costs?

Supplier / Vendor Collaboration Initiatives Improvement Area % of Responses Order Lead Time 65% Demand Forecast Sharing Inventory Status Sharing 61% Packaging 53% Shipment Size and Frequency 48% Shipment Mode 41% Shipment Damage 35% Inventory Reduction 33% On Time Delivery 29% Accurate and Timely Reporting 28% Supplier / Vendor Collaboration What improvement initiatives are you working on with suppliers / vendors? Reducing lead times and sharing of data received the highest number of responses.

Terms Included in Formal Agreements Written agreements in some form are used by 93% of survey participants, and SLAs are used by 50% of participants. Terms % of Responses Order Lead Time 39% Vendor Penalties Minimum Volumes 33% On Time Delivery 32% Order Fulfillment Accuracy 29% Order Change Guidelines 28% Demand Forecast Sharing 22% Resolving Disputes Vendor Incentives 17% What terms are included in formal SLAs?

Supplier / Vendor Performance Levels The concept of the perfect order was viewed as the most important metric for measuring suppliers/vendors, but it has not gained widespread usage. Significant improvements in performance are targeted with suppliers/vendors.

Accountability for Supplier / Vendor Performance Accountability Method % of Participants Financial Penalties 67% Reduction in Order Volumes 55% Bonuses 0% Formal Recognition Programs 24% How do we hold suppliers/vendors accountable for performance results? Improvement Level % of Participants No Clear Improvement 17% Minor Improvement 41% Major Improvement 35% Meets all of our Expectations 7% How effective is your supplier/vendor compliance program for improving results?

Your Expectations What would you like to learn from this session? Important issues? What’s working? What’s not working? What’s changing? Shared good and bad experiences? Reasonable performance expectations?

Potential Discussion Points What guidelines do you provide suppliers/vendors for performance? How often are guidelines updated? What issues are important to cover in a written agreement? How do you decide which suppliers/vendors need SLAs? What are your requirements for store ready and manufacturing ready deliveries from suppliers/vendors? Do you use performance scoreboards with suppliers/vendors? How often are the results reviewed? What is the feedback mechanism? Performance penalties vs. bonuses?

Potential Discussion Points (continued) Who is responsible for supplier/vendor performance goal setting in your organization? Does your Warehouse Management System support performance/compliance measurement? If not, then how do you do it? Is it done in an automated or manual fashion? What changes do you have planned in your supplier/vendor compliance program to improve supply chain performance? What impact does supplier/vendor compliance have on supply chain costs? Do you track cost reductions and share benefits? Is supplier/vendor information sharing well established? How automated is the data transfer?

Important Takeaways While there are many supplier/vendor collaboration takeaways in Benchmarking & Best Practices, some of the more important are: Written agreements – It is very important to establish supplier/ vendor requirements and expectations in writing and document critical aspects of the relationship. SLAs are being used in over 50% of supplier/vendor relationship. Performance measures – Measure what is important and monitor performance in order to foster an environment of continuous process improvement. The concept of the perfect order is gaining in application. Improvement initiatives – The areas with the greatest degree of focus for suppliers /vendors are order lead time improvement, the sharing of inventory, and demand forecast information.

Important Takeaways (continued) Accountability – Essentially all compliance programs assess penalties for poor performance but do not offer bonuses for exceptional performance. Performance improvement results – A large percentage of participants felt that supplier/vendor compliance programs provided little or no improvement in performance. Store ready and production ready delivery – An increasing but still somewhat limited number of retailers are receiving products in store ready packaging and labeling. Very few manufacturers are receiving supplier deliveries ready for production.

Questions?

Benchmarking & Best Practices References Information on supplier collaboration strategies can be found in the following references: Note: Available for downloading at www.supplychainconsortium.com