Procure SRM 1© The Delos Partnership 2005 Procurement Masterclass Supplier and Results Management

Procure SRM 2© The Delos Partnership 2005 Supplier & Results Management 6 Supplier Management – Relationships & Results

Procure SRM 3© The Delos Partnership 2005 Supplier Relationship Types  No trust between supplier and buyer  Closely guarded information on both sides Supplier Enemy  Buyer dictates price and service parameters  Threat of pulling business Exploitable  Buyer views suppliers sales representative as friend  Rarely any professional negotiation Informality  Long rewarding relationship  Genuine commitment, but not tied to any specifics Approval Plus  Small supplier gets paid what he needs to remain profitable Friendly Parasite  Supplier is viewed as integral part of buyer’s business  Relationship includes technical, operational and sales people Preferred Supplier  Supplier is viewed as resource to gain competitive advantage  Long term commitment Strategic Partner

Procure SRM 4© The Delos Partnership 2005 Role of a Supplier Manager The supplier manager has the overall responsibility for a supplier relationship –“Owns” the relationship on behalf of the customer organisation –Is a catalyst which enables the two organisations to work together –Regularly monitors the contact between the two organisations –Reports to Senior Management He or she ensures that communications are effective and efficient –Manages initial discussions and assists in drawing up contracts –Is kept fully aware of communications & can be involved in negotiations & deals –Is the conduit and prime contact –Arranges and facilitates meetings and events Can be dedicated to one strategic partner and/or Product Category –High involvement: one supplier manager for one supplier –Low involvement: One supplier manager for several suppliers

Procure SRM 5© The Delos Partnership 2005 Identifies new value opportunities Defines the project and measures improvement potential Confirms resource requirements and organisation Create project with stage- gates and milestones Removes Roadblocks for the project team Measures the value delivered and communicates progress Implementation Builds the relationship Supplier Manager Stages

Procure SRM 6© The Delos Partnership 2005 Positioning Supplier Managers  Supplier Importance  Current relationship  Negotiation & Deal Status  Current Communication  Involvement levels  Performance Measures Key Considerations

Procure SRM 7© The Delos Partnership 2005 Risk Ensure Supply Partner Value Partner Value Minimise Attention Minimise Attention Drive Savings Drive Savings Strategy Focus

Procure SRM 8© The Delos Partnership 2005 Supplier and Results Management Supplier Assessment

Procure SRM 9© The Delos Partnership 2005 Typical Starting Point There is huge and unrecognised value in supplier performance assessment. Internal Customers and most internal functions have their favourite suppliers. Most suppliers have made value contributions and are proud of their performance. Most suppliers will be Silver Gilt or below. Senior Management commitment to supplier performance assessment is normally low and respective senior management may have only met at social events. The lack of user requirement specifications and internal team working can mean that overall supplier performance is not recognised and understood Internal resistance to the programme may occur

Procure SRM 10© The Delos Partnership 2005 Supplier Performance Assessment Supplier Performance Assessment is a formal supply side management programme that continuously and quantitatively assesses the performance of all categories of suppliers against seven performance elements 1)Risk Management 2)Quality and S.H.E. 3)Cost (Price) 4)Delivery 5)Process and Service 6)Innovation 7)Business Value and Net Total Value (£). Its purpose is to provide a channel through which suppliers performance is professionally assessed and their best ideas are captured. Its purpose is to provide a channel through which suppliers performance is professionally assessed and their best ideas are captured.

Procure SRM 11© The Delos Partnership 2005 Supplier Ranking & Performance There are five levels of Supplier Performance is assessed against seven elements for all five levels The level or ranking is based on the net total value delivered by the supplier Suppliers might be eliminated from any level BRONZE BRONZE(New) SILVER SILVER(Development) SILVER GILT SILVER GILT(Approved) GOLD(Preferred) PLATINUM PLATINUM(Strategic) SUPPLIER ELIMINATION

Procure SRM 12© The Delos Partnership 2005 SUPPLIER PERFORMANCE & VALUE GAP ASSESSMENT Assessment Measure BronzeSilver Silver Gilt GoldPlatinumScore Risk Management Assessment Quality & HSE Performance Cost Performance Delivery Performance Process & Service Performance Innovation Performance Business Value & Net Total Value Delivered Bronze = New Supplier Silver = Development Supplier Silver Gilt = Approved Supplier Gold= Preferred Supplier Platinum= Strategic Supplier Assessment Measures

Procure SRM 13© The Delos Partnership 2005 Supplier Performance Assessment The assessment is based on the net total value delivered by the supplier in the past; a discussion on where performance has improved, declined or remain static versus each total value element The joint definition and agreement to specified future value added goals that are directly part of the business vision, strategy and priority.

Procure SRM 14© The Delos Partnership 2005 Workshop What are your current Supplier Assessment tools, and what needs to be done to improve them to make them deliver improved Total Value ?

Procure SRM 15© The Delos Partnership 2005 Supplier and Results Management Results Management

Procure SRM 16© The Delos Partnership 2005 Supply & Procurement Priorities Performance Measure Sales Profit and Growth Cost of Sales People Costs AssetsInventoryCreditors Perfect Customer Orders Lead Time Reduction RFTQ100%OTIF Supplier Schedule Achievement On Time New Products Total Net Value Delivered

Procure SRM 17© The Delos Partnership 2005 Business Financials Shareholders, Stakeholders, Management, Employees, Customers, Suppliers & Competitors are focused on business financial performance and outlook

Procure SRM 18© The Delos Partnership 2005 Supply Chain & Procurement Financials Stakeholders, Management, Supply Chain, Procurement and Suppliers (Supply Side Performance) are normally focussed on costs – direct, indirect, assets, inventory...

Procure SRM 19© The Delos Partnership 2005 Results Tracking Cost Change is normally allocated against cost centres & monthly cost centre report and procurement report is produced. Stakeholders, customers, finance and procurement need to own the cost centre cost, results and performance change. A common results tracking system needs to be developed and agreed – tied into the business financials

Procure SRM 20© The Delos Partnership 2005 Results Tracking Key performance indicators show progress or deterioration versus the standard using overall total value, supplier and procurement performance change (i.e. not just price or quality) Cost avoidance must be against agreed market and competitor benchmarks Performance and results need to be communicated on a monthly basis

Procure SRM 21© The Delos Partnership 2005 Category Total Value Plan

Procure SRM 22© The Delos Partnership 2005 Quarterly Focus Quarterly focus documents should be produced for the complete procurement and supply chain team. Focus documents are an excellent way of ensuring team consensus and awareness of the overall business goals, overall functional goals and individual goals – all of which must be aligned. All quarterly goals – business, function and individual need to be S.M.A.R.T. All team members need to contribute to the quarterly focus followed by a commitment from all team members to write & share their smart goals.

Procure SRM 23© The Delos Partnership 2005 Smart Goal Definition Specific What is the specific goal? What is the benefit to the business? How can we measure the performance? Measurable How will the business measure the value of the goal? How will the business measure the value of the goal? How will the business measure the volume of work? How will the business measure the volume of work? Achievable Achievable Does the business team/business support the goal? Does the business team/business support the goal? Can the goal be achieved with current resources? Can the goal be achieved with current resources? Realistic Is the goal realistic? Is there past experience in the business of this goal? Time limited How will progress be reviewed? How will progress be reviewed? What are the consequences if the goal deadline is missed? What are the consequences if the goal deadline is missed?

Procure SRM 24© The Delos Partnership 2005 Procurement Focus Examples 1.Supply assurance – Specific Quarterly Focus Areas 2.Total value plan – Specific Quarterly Focus Areas 3.Improve purchasing processes – Specific Quarterly Focus Areas

Procure SRM 25© The Delos Partnership 2005 Focus is to get specific supplier to deliver all orders 100% OTIF Focus is to get specific supplier to deliver all orders 100% OTIF People Processes Poor communication & unreliable promises Supplier lack of goals Manufacturing Material Order Placement Supplier Projected Requirements Machine Availability (Make our orders a top priority) Obsolete, Spoiled, Out of date, Non availability Not to spec Stoppages & Breakdowns due to people, power and equipment No carrots & sticks (rewards & penalties) Materials Free Issue Order management Stores and Goods Receiving Upstream materials long / variable lead time Untrained, low capability, low commitment to value Sub Contracted Focus using Fishbone Tool

Procure SRM 26© The Delos Partnership 2005 Reporting Timelines & Structures Procurement Relationship DailyWeeklyMonthlyQuarterly Senior Management Customer supply risk issues and immediate response if needed Brief informal overview Procurement Monthly Report Procurement Review Meeting Internal Customers & Stakeholders Customer supply risk issues. Customer claims or service issues Personal contact for two way update Relevant parts of the Procurement Monthly Report Review of KPI's and key issues Other key sister functions Customer supply risk issues. As and when required or if priority item needs resolution Relevant parts of the Procurement Monthly Report Review of KPI's and key issues Suppliers Customer supply risk issues and corrective actions. Weekly Performance Reports Transmission and review of performance and supply data Supplier Performance Assessment Meeting Procurement Team Customer supply risk issues, market information, visit and meeting reports Savings Log and Team Meetings Monitoring of results by supplier, by product vs. agreements and plan Performance appraisal - team and individual