Strategy Process Slide 1 © The Delos Partnership 2005 Supplier Relationship Management Module 6 – Supply Strategy Marketing & Sourcing Strategy Leverage Opportunities IP Management Standardisation e Commerce / e Auction

Strategy Process Slide 2 © The Delos Partnership 2005 Put together negotiation plans & channels. Ensure that the channel plans have been thoroughly prepared. Ensure a CDA is in place so that there is no market leakage of information. Analyse & evaluate completed RFQ’s Use/modify evaluation criteria Get key stakeholder input Discuss and develop needs and wants. Discuss and agree the different Negotiation roles & styles. Create the negotiation team (never alone!! and typically 3-4 people) Decide on negotiation team roles. Supplier Selection Legal Supply and Service level agreement and Total value plan, Performance Measures Supplier and relationship management Communicate of results on a need to know basis. Plan the Channels & new Agreement Plan the Channels & new Agreement DevelopNegotiationStrategyDevelopNegotiationStrategy PostNegotiationActionsPostNegotiationActionsDevelopNegotiationGoalsDevelopNegotiationGoals Negotiate / Select the Suppliers

© The Delos Partnership 2005 Customer Needs Supply Side Value Sourcing Transactions Order Placing Order Negotiation Sourcing Supplier Relationship Management Sourcing Value Add

© The Delos Partnership 2005 The Bow-Tie Relationship Supplier Sales Person Buyer Supplier Management Sales Marketing Operations R&D Supply Chain Procurement Customer Management Sales Marketing Operations R&D Supply Chain Procurement

© The Delos Partnership 2005 The Diamond Relationship Management Sales Marketing Operations R&D Supply Chain Procurement Management Sales Marketing Operations R&D Supply Chain Procurement Key Account Management

© The Delos Partnership 2005 Strategic Focus Relationship Management Joint Development Senior Relationships Joint Ventures Supply Chain Integration Global Account Management Customer Service Joint Marketing

Strategy Process Slide 7 © The Delos Partnership 2005 Leverage power of suppliers Market Leverage Threat of New Suppliers Substitute products or services Business & Competitive Environment Porter’s Five Competitive Forces

Strategy Process Slide 8 © The Delos Partnership 2005 Brand Management Marketing champion the brand, and determine product and price strategy. Innovation pricing Market skimming pricing strategy Price elasticity [revenue versus volume] Differentiated brands are premium priced – some relates to innovation cost. Marketing preserve “brand equity” Create Market segments – same product: different price "Price is a function of perceived value and emotion". The heart is 50x more electrical and 1000x more electromagnetic than the brain. (e.g. Coca Cola, Virgin) "Price is a function of perceived value and emotion". The heart is 50x more electrical and 1000x more electromagnetic than the brain. (e.g. Coca Cola, Virgin)

Strategy Process Slide 9 © The Delos Partnership 2005 Sales Penetration & Exploitation Look to exploit the lack of internal communication and integrated supplier strategies Gain knowledge through telesales and engaging the over- communicators. Penetrate poor security and easy site access Use switchboard, networks, direct calls to locate key influencers & decision makers Try to avoid Procurement involvement until as late as possible

Strategy Process Slide 10 © The Delos Partnership 2005 Penetration & Access Penetration & Access Board & CEO R&DEngineering Sales & Marketing Business Development Quality Business Centre I.T.LegalFinance Direct into functional head or team members Top Down Bottom Up How can Purchasing maintain leverage given widespread penetration and access?

Strategy Process Slide 11 © The Delos Partnership 2005 Strategic Critical (Risk & Value) Commoditisation & Leverage Conflict Supplier tries to extract premium pricing and controls Conflict exploits relationship and tries to commoditise a specialty Leverage or Alignment? Perfect Alignment

Strategy Process Slide 12 © The Delos Partnership 2005 DOGS PROBLEM CHILDREN CASH COWSSTARS PRODUCT VOLUME PRODUCT PROFIT Leveraging Product Types KeyLeverageType KeyLeverageType

Strategy Process Slide 13 © The Delos Partnership 2005 TIME (CAN BE MONTHS) 0% PRODUCT MARKET SHARE LAUNCHGROWTHSTAGNATIONDECAY 1990’s 2000’s 50% INNOVATION Leveraging Product Life Cycles KeyLeverageTime KeyLeverageTime

Strategy Process Slide 14 © The Delos Partnership 2005 Leveraging the Supply Side Bargaining Power & Leverage Supply Side Value delivery (£) Standard Costing Pricing, Market Structures & Agreements Managing Supplier Procurement Costs Collaborative vs. Confrontational Leverage Supplier Development – Value Stream & Lean Managing Supplier Development Plans Supplier Performance Assessment

Strategy Process Slide 15 © The Delos Partnership 2005 The Competitive Box Known / Unknown suppliers operating in traditional value add ways with the cosmetics customer base and competing for market share Customers Customers Conventional value propositions New Supplier New Business Model SuperiorvalueSuperiorvalue Three Choices

Strategy Process Slide 16 © The Delos Partnership 2005 Intellectual Property Management Adequate protection for Customer and Internal I.P. Controlled supplier access to sensitive projects, parts of the plant etc CDA from the beginning Joint Development Agreement with specifically named project members Joint Exploitation Agreement Potential licence fees and royalty income from all joint supplier inventions

Strategy Process Slide 17 © The Delos Partnership 2005 This is the second customer who has talked to me about this great new product opportunity and shared their expert knowledge. I'll even try to get a photo of the product from them.., This is the second customer who has talked to me about this great new product opportunity and shared their expert knowledge. I'll even try to get a photo of the product from them.., I have a problem here in. Let me talk to you all about it, and what I am doing with other suppliers. Intellectual Property Management

Strategy Process Slide 18 © The Delos Partnership 2005 " I think I've got something that could really help. We've just invented it and filed for a patent... Patent in the name of the supplier Patent in the name of the supplier That’s really good; it is just like we wanted. I did not realise that you had got a patent on it though ! Could I have a sample and price? Intellectual Property Management

Strategy Process Slide 19 © The Delos Partnership 2005 They will pay top dollar for my product but I'll give a discount which they will value. There are other development projects I want to exploit Intellectual Property Management

Strategy Process Slide 20 © The Delos Partnership 2005 Standardisation & Rationalisation Many companies suffer from the "cost of complexity" –historic specifications –obsolescent specifications. This in turn can lead to expensive set-up costs

Strategy Process Slide 21 © The Delos Partnership 2005 Standardisation 80 % of the cost is built into the product at the design stage If designers do not build in commonality and standard products/components then costs increase

Strategy Process Slide 22 © The Delos Partnership 2005 Specials vs. Commodity What you think is special may not be special Suppliers will try and create “special” to extract value Suppliers will try and sell to your people and force you to specify “special” You try and create “commodities” but they will want “specials”

Strategy Process Slide 23 © The Delos Partnership 2005 Current Supplier Strategy

Strategy Process Slide 24 © The Delos Partnership 2005 “Negotiation” Choices Over the phone Buy “On Line” – Sellers Catalogue Buy “On Line” – Buyers Catalogue E Commerce – Auctions, e Tenders, Portals Indirect Channel Direct Channel OR Face to Face – Negotiation

Strategy Process Slide 25 © The Delos Partnership 2005 Negotiation – e Commerce  e Commerce Definition  e – Tools  Tool Comparison table  Reverse Auction - Positives and Negatives  Logistics and Freight example

Strategy Process Slide 26 © The Delos Partnership 2005 e–Commerce Definitions Use of the Internet, ERP or online tools in order to source products and services across global markets. market A Sourcing tactic, technique and tool and not a strategy Covers applications such as reverse auctions, electronic tenders and purchasing portals

Strategy Process Slide 27 © The Delos Partnership 2005 Reverse Auctions Live and interactive bidding online that makes use of ceiling prices & bid increments so that business finally goes to the lowest bidder Electronic Sourcing & Tenders Uses the traditional tender process against an RFQ but makes use of the Internet to manage projects and obtain quotations. Far more effective than traditional paper methods. Portals Internet / Intranet / Extranet site (portal) where user needs are positioned and supplier bids & information is electronically managed as part of the Business Sourcing process. e-Tools

Strategy Process Slide 28 © The Delos Partnership 2005 Market Factor Reverse Auction TenderNegotiation Supplier RelationshipLeverageStrategic/CriticalCritical Supply Demand BalanceLongBalancedShort TypeCommoditySpecialitySpecial ApprovalsManyFewOne or Two GlobalityGlobalSite to GlobalRegional Large Business TurnoverWidely UsedCommonIncreasingly rare Product ApprovalEasyDifficultHard Pricing ControlBuyers FavourNeutralSellers e Tool Applications

Strategy Process Slide 29 © The Delos Partnership 2005 Efficient (no lunch & lingo) Global Reach Aggressive bidding Transparent Transactionally efficient e Auction – Positives

Strategy Process Slide 30 © The Delos Partnership 2005 –Requires Preparation –Can be Costly (ROI) –Need to integrate / involve IT and ERP –Education and training (Buyers and Suppliers) –Set Up time (people, ceiling prices & communication timings, bid size decreases, lot sizes, auction duration & overtime periods, single or nested, visibility & transparency) –Final Allocation of business (Goes to the lowest price bidder you may not like) e Auction Negatives

Strategy Process Slide 31 © The Delos Partnership 2005 e Auction Providers e Auction Providers -Procuri -Freemarkets (Ariba) -Trading Partners -Utilyx -PwC -JSI -E-Three -Hedgehog

Strategy Process Slide 32 © The Delos Partnership 2005 Logistics and Freight (Sea, Road, Couriers) is a good category for reverse auctions. Overcapacity leading to constant downward price pressure Significant options to destinations Many well qualified suppliers Non Strategic Supplier relationships Easy to assemble specifications and benchmarks Logistics Example

Strategy Process Slide 33 © The Delos Partnership 2005  Questions ?