Vendor Collaboration and Initiatives to Improve Performance Executive Seminar September, 2005

Framing the Vendor Discussion For today’s discussion, we will be focused on the following supply chain objectives of a vendor relationship … Shipping the right product and quantity Ensuring the product is shipped with the right packaging and labeling Ensuring the product is shipped on time with the appropriate routing Achieving short, consistent lead times Executing at the lowest cost appropriate for service requirements

Vendor Collaboration Foundation questions for the vendor collaboration discussion … Do you have a formal program in place for setting vendor requirements, monitoring performance and communicating results? If you have a formal vendor performance program, does the program meet all of your expectations? Who owns the vendor relationships in your company? Where is the biggest opportunity to improve performance?

Where is Performance Today? … significant opportunities for improvement.

Performance Ranges Looking past the averages, consider the good and the bad ... … some performances likely result in significant competitive disadvantage

Penalties and Rewards Penalties are a key part of many programs Positive incentives are less pervasive Intent – corrective action versus revenue line item Monitoring programs are not always “transparent”

Satisfaction with Current Programs … the satisfaction with current programs is not high.

Expediting and Ordering Behaviors Reasons shipments must be expedited ... … three of the top four reasons are controlled by the retailer.

Joint Initiatives with Vendors The most significant improvements can result from joint initiatives undertaken with vendors. Initiatives may include:

Service Level Agreements 42% of participants have Service Level Agreements (SLA’s) with at least some vendors. Terms include:

Vendors Feedback Is vendor input encouraged? Less than one fifth of customers have a formal program for encouraging feedback from vendors.

Dialog with Vendors Is performance shared and discussed frequently?

Learning’s on Vendor Collaboration Best practice includes ... Implement a timely, accurate and transparent measurement process. Communicate results. Measurement can be two-way. Rank vendors so that the largest vendors receive the greatest attention. Commit resources, potentially dedicated staff to the larger relationships. Commitments should be supported by a solid business case. Penalties can be effective, but they need to be reasonable (reflect the cost of non-performance), applied consistently and motivated by a desire to fix problems. Ordering behaviors need to support performance goals. Information sharing is essential – sales forecasts and future plans. Focus on specific problems with cross functional teams from the retailer and vendor.

Questions?