Supplier management - an indispensable instrument for the prequalification of suppliers Thomas-M.Maier In-house lawyer, KELAG Wärme GmbH Kiev, 6-7 september TMM

Agenda  Introductory remarks  Procurement strategy  Commodity strategy  Supplier strategy / Supplier management  Process  Content  Principles  Assessment / practical example  Lessons learnt 2

Introductory remarks (1)  The upmost aim of any effort to improve a companies procurement is to rise efficiency and effectiveness and to reduce risks …  …therefore the challenges to manage are:  Cost pressure  Rising Risks (raw materials, costs of exchange, …)  Complexity of procurement laws  Globalization  Time pressure in any project  Changing technologies  Corruption 3

Introductory remarks (2)  In the field of purchase and procurement the answers may be …  A reasonable procurement strategy  A balanced commodity strategy, that is in line with the requirements of the company  An efficient supplier management  Predominantly this will lead to a liaison with the best and most competitive suppliers 4

Introductory remarks (3)  In the history of procurement it is to notice that expectations and benefit as well as the roll of time changed  In the past (till 80´s): Enough time / quality and price were crucial  Nowadays : procurement is an interface between top-management and the carrier of demand / beside short time, quality and price information and its rapid change is crucial  Factor of success  Vision, aim, strategy  Team (!), communication, methods and tools (!) 5

Procurement strategy (1)  The procurement strategy is part of the materials logistics of a company and in this field crucial for  Quantity and quality of …  …particular works, goods and services …  … within a certain prize frame  Partner: The supplier Question is: Where do you want to go and what do you need? 6

Procurement strategy (2) 7 PVO (purchase volume) Complexity / risks Less aggressive or defensive position Technical Standardisation Supplier Management Supplier management Innovation, Joint Development, Use the market excessively Risikmanagement Reduce sourcing costs C-Materials Automatisation Strategic Sourcing, Use the market Supplier Management Zero

Commodity strategy (1)  Before starting with the supplier management one must know indispensable which commodities a company needs; therefor you need to know the company´s aims.  Need to know:  Overview on commodities (in case of my company: insulated pipes, works, plants, control engineering – not food chemistry, boats & caravans, medical instruments, …)  Own position in the group  The market and its tendencies 8

Oral Example: preinsulated pipes Commodity strategy (2) 9 Result Strategy (how?) Tactics (with what?) Who does what? Vision / aims Review & Controlling Ressources Various influencing factors Values

Supplier strategy and supplier management(1)  In most cases the PVO reaches up to 50% of a company´s turnover – the performance of the procurement efforts therefore is decisive. Question is: How to find YOUR supplier?  The challenges are  Concentration on the best  Suppliers with the capability to support you in your own aims  Suppliers with sufficient and good ressources  Ability for cooperations  Potential for innovations  Generation of win – win (b2b) and win (b2c) situations 10

Supplier strategy and supplier management(2)  Why supplier management?  Creating competition in between the market participants  Breaking up monopolistic market powers (if feasible)  Reducing costs  Knowing the technology is conditional for being up-to-date  Growing together  Creating long term relations (if feasible)  Creating mutual confidence to detect risks earlier  Reducing Costs of logistics  Creating sustainability 11

Supplier strategy and supplier management(3)  Factors of success for your choice?  Using a holistic approach (starting with the procurement strategy, then the commodity strategy and afterwards the supplier strategy)  Applying fair methods of choice when entering a partnership  Using transparent and open minded criteria  Searching individualism  Creating a “good relation management” (if feasible)  Being direct – also when ending a partnership The question is: How can I reach my aim with MY supplier? 12

Supplier management / process 13 Company vision, aims Procurement strategy leads to commodity Strategy leads to Supplier strategy Needs quantity, quality, date, terms, conditions, sustainability market Raw materials, Suppliers, Surroundings, Other influences Supplier management Supplier management Phasing out Assessment Advancement and corrective action Control & review Developement Choice of suppliers Tender and Execution of the contract

Supplier management / content 14 Supplier management Phasing out Advancement and corrective action Control & review Choice of suppliers Assessment Development

Supplier management / principles  Company wide and consistent work  i.e. Prices and economies, quality, logistics, technology and management  Assessment is depending on the commodity strategy  PVO influences the assessment, but does not steer it  Categorization must be clear  A-, B- and C – supplier and “traffic light categorization”  Using SWOT-Analyses  Documentation and re-evaluation  “The system must be lived” 15

Supplier management / assessment  Practical example 16

Lessons learnt  Depending on the branch the implementation of a strategic approach for procurement is very hard  Company with 200 people: 1,5 years till you “harvest your first fruits”  Timeframe is depending on resources  “Knowledge-curve” about suppliers and market is rising steeply after 2 years  Knowledge is always parked anywhere – with a strategic approach you use means and methods to create a knowledge pool  Supplier management is a permanent process 17

Contact 18 Mag. iur. Thomas-M. Maier, LL.M. Head of strategic procurement and legal department Tel: + 43 / 676 / KELAG Wärme GmbH St. -Magdalener-Straße Villach Austria