MEASURING SUPPLY MANAGEMENT GOALS Team: Members: Sandor, Joe (2014). Can You Measure Your Supply Management Goals?, Supply Chain Management Review. Article Summarized by: Mohammed Aldaham

Order of Presentation

[1] Supply Management Goals Most companies identify purchased goods a significant portion of their cost structure Illustrative Goals for Supply Management effectiveness Be the Customer of Choice (CoC) Deliver absolute and sustainable competitive advantage (SCA) Be an indisputable business partner (IBP) Goals can not be illustrative for effective implementation; Goals need to be measured. All multinational companies identify that cost if purchased goods and services, i.e., raw materials from suppliers, constitute major portion of their cost structure. Hence it is relevant to effective manage supply management to have a strategic advantage. Effective supply management needs goals. The illustrative goals for effective supply management are (i) be a customer of choice (CoC) (ii) deliver absolute and sustained competitive advantage (SCA) and (iii) be Indispensible Business Partner. However these goals are illustrative and a practical measurement framework for these goals will aid in effective supply management.

[2] What?: Be The Customer of Choice (COC) Effective and mutually beneficial supplier relationship management Combative negotiation VS Collaborative negotiation - eliminates or reduces network costs, improving network profitability and/or enhancing revenue 4Cs Hierarchy for collaboration Level 1 : Communicate Level 2 : Co-ordinate Level 3 : Co-operate Level 4 : Collaborate The goal of a company to become a customer of choice to its supplier is sustain and maintain supplier relationship management that is mutually beneficial. Generally relationship with supplier is viewed as a zero sum game negotiation to extract cost benefit that is mutually destructive. However the goal of being a customer of choice is to view supplier as collaborator and negotiate for mutually beneficial result. This will replace short term mindset with a long term view that benefits and improves the efficiency of supplier network as a whole delivering a long term advantage. The process of this supplier relationship management entails a 4 level hierarchy (i)Communicate and understand mutual expectations (ii) Co-ordinate actions for maximum efficiency and effectiveness (iii) Co-operate for mutual benefits and trust and (iv) Collaborate to achieve long term benefits

[3] Measure: Be The Customer of Choice (COC) Supplier relationship management is a qualitative aspect – Self evaluation and direct discussion is ineffective Third party survey is best measurement tool Survey should be anonymous Key supplier stakeholders should be involved Quality of survey questions and interpretation critical Periodical survey will be effective : Most preferable periodicity is yearly Actions taken based on Survey results is very crucial for improvement of supplier relationship management The various factors that result in effective supplier relationship management are qualitative aspects – trust, collaboration, perception, etc. Hence any self-evaluation may be clouded by bias and direct discussion with suppliers may not be effective. The best tool for measurement of supplier relationship management is third party surveys conducted with the supplier. The critical factors for surveys are (i) the survey should be conducted by a third party (ii) Survey should be conducted anonymously (iii) The quality of survey questions and its interpretation is crucial for better results and (iv) Surveys should be conducted periodically for better results. More importantly appropriate actions taken based on survey results is very important for improvement of supplier relationship management  

[4] What?: Deliver Sustainable Competitive Advantage (SCA) Delivering sustainable competitive advantage is a natural continuation of the first goal. In addition to effective collaboration, the supplier relationship should deliver genuine strategic advantage. The results of collaboration are related to the second illustrative goal of delivering a Sustainable Competitive Advantage. Goals one and two share relationship outcomes: Is the result of the collaboration innovative, unique, exclusive, differentiated, desired by customers, difficult to copy, confer an absolute cost advantage, and is it sustainable? Absent these desired outcomes, the buyer/supplier relationship probably does not deliver genuine strategic advantage. Now, this definition severely limits the use of the word collaboration. Such collaboration provides the RIGHT good at the RIGHT cost (the costs that best motivate and reward a given supply network).

[5] Measure?: Deliver Sustainable Competitive Advantage (SCA) SCA should reduce the firm’s total cost of ownership and increase the firm’s revenue and innovation While SCA can be measured by way of increased profitability (Higher revenues/ lower cost), it is difficult to establish extent of SCAs role in profitability increase Measuring the illustrative goal of delivering a Sustainable Competitive Advantage (SCA) is difficult because it is difficult to separate and quantify supply management’s contribution to overall firm performance and it requires steady process faith distinguishing between activities and achievements. There is a strong link between superior supplier relationships and competitive advantage. Therefore, a supply-driven SCA will reduce the firm’s total cost of ownership and increase the firm’s revenue and innovation. Supply management positively affects costs and revenues, i.e profitability faster. A firm improves its stock price and P/E ratio versus the relevant peer group directly as a result of one of those supply driven results. Measuring supply management results as finance performance is necessary but not sufficient.

[6] What?: Be an Indisputable Business Partner (IBP) To sustain supplier relationship management and drive sustainable competitive advantage, effective supply talent management is crucial Being IBP delivers a gateway role between supplier network and company requirements to drive value creation, innovation and product development The need to attract, develop, and retain supply management talent is a key objective for efficient supply management organizations. Identifying, monitoring, and tracking high-potential employees are crucial. All organizations need to improve their talent management processes and the best firms are continually vigilant in staying ahead of the talent maturity curve. The Indispensable Business Partner demands boundary spanning skill to become gateway functions that link supplier networks to firm problems and opportunities in ways that drive innovation and accelerate new product development. It requires interaction with multiple stakeholders inside and outside of the firm to effectively orchestrate cost leadership and revenue enhancement.

[7] Measure: Be an Indisputable Business Partner (IBP) Measurement of indisputable business partner goal is similar to Customer of Choice goal measurement A survey among the internal customers of the company’s supply management team is undertaken to measure this goal. In addition to responses to specific survey questions open ended and unstructured comments can be sought from respondents. The metrics recommended for indisputable business partner goals are similar to those for supplier perception. In this case, supply management’s customers are surveyed on how well their needs are being served. As part of the survey key internal stakeholders should be requested to rate supply management effectiveness against - (i) industry and commodity knowledge of supply management team (ii) Professional and ethical behavior of the team (iii) negotiation skills, business needs understanding level, supplier relationship management skills, etc. of the team and such related questions. In addition a request for open ended, unstructured comments from survey respondents will be helpful guidance.