Supply Chain Doctors SCM Fundamentals Introduction Planning Sourcing Making Warehousing Transporting Sharpening the Saw

Supply Chain Doctors Sourcing Supply Base Consolidation Source Selection Make-Buy Decision Supplier Performance Evaluation Supplier Certification Supplier Relations – Understanding Customer Loyalty

Supply Chain Doctors What is Supply Base Consolidation? Consolidation: A reduction in the number of suppliers.

Supply Chain Doctors Why Consolidate? Cost of Procurement Price Decreases through Consolidated Purchases Lead time reduced Quality improved Focus

Supply Chain Doctors The Ideal Supply Base Powerful improvement engine Fast Flexible Efficient Good communicators

Supply Chain Doctors Surveillance Low spend - high risk Long-term Relationship High spend - high risk Contractual High spend - low risk High Low High Risk Annual Spend Supplier Characterization Matrix Transactional Low spend - low risk

Supply Chain Doctors SurveillanceLong-term Relationship Contractual High Low High Risk Annual Spend Supplier Characterization Matrix Transactional Consolidate

Supply Chain Doctors SurveillanceLong-term Relationship Contractual High Low High Risk Annual Spend Supplier Characterization Matrix Transactional Consolidate

Supply Chain Doctors SurveillanceLong-term Relationship Contractual High Low High Risk Annual Spend Supplier Characterization Matrix Transactional Consolidate Risk reduce & Consolidate

Supply Chain Doctors Barriers to Consolidation Fear of loss of competition Doubtful savings Dilbert Lack of commitment to the selection process Pets

Supply Chain Doctors How Can I Be Successful? Keys to a Successful Plan Plan with your customers in mind –Transaction costs –Leverage –Capability development –Project support

Supply Chain Doctors How Can I Be Successful? Keys to a Successful Plan Understand your internal customers’ supplier evaluation / selection process & market accordingly.

Supply Chain Doctors Structured Supplier Evaluation

Supply Chain Doctors Supply Base Consolidation: Summary Consolidation can yield savings in: –transaction costs –leverage –inventory reduction –quality –loss of focus It is a key enabling strategy to other supply chain improvements.

Supply Chain Doctors 18 Sourcing Supply Base Consolidation Source Selection Make-Buy Decision Supplier Performance Evaluation Supplier Certification Supplier Relations – Understanding Customer Loyalty

Supply Chain Doctors Quality Assurance Cost (Labor, Overhead, Inventory, Transportation) Delivery Performance Lead Times Factors in Choosing a Supplier

Supply Chain Doctors Reputation and financial stability Location Flexibility Total Solution Factors in Choosing a Supplier (cont’d)

Supply Chain Doctors 18 Sourcing Supply Base Consolidation Source Selection Make-Buy Decision Supplier Performance Evaluation Supplier Certification Supplier Relations – Understanding Customer Loyalty

Supply Chain Doctors 4 Outsourcing Purchased items account for 50 to 70% of the cost of goods sold. Outsourcing allows firms to focus on their core competencies. Organizations outsource when they decide to purchase something or some service they previously supplied themselves.

Supply Chain Doctors 5 Make or Buy Current trend favors outsourcing all activities that do not directly represent or support core competencies. What concerns would a company have about outsourcing products or services?

Supply Chain Doctors 18 Global Sourcing Original strategy was to reduce production costs. The primary focus was on labor cost reduction.

Supply Chain Doctors 18 New Focus of Global Purchase Local content / market access Product availability Technology / information management Delivery Lead times Labor availability and quality.

Supply Chain Doctors 18 Sourcing Supply Base Consolidation Source Selection Make-Buy Decision Supplier Performance Evaluation Supplier Certification Supplier Relations – Understanding Customer Loyalty

Supply Chain Doctors Supply Chain Management Performance Evaluation Quality Cost Delivery (Lead Time) Process Measures (Balanced Scorecard) –Reliability –Flexibility & Responsiveness –Expenses –Asset Utilization

Supply Chain Doctors Metrics Reliability –On-time delivery –Order fulfillment lead time –Fill rate –Percent order fulfillment Flexibility/Responsiveness –Response time –Upside production flexibility

Supply Chain Doctors Metrics Expenses –Supply chain management costs –Warranty cost as percent of revenue –Value added per employee Asset utilization –Total inventory days of supply –Cash-to-cash cycle time –Net asset turns

Supply Chain Doctors Typical Benchmark Key Performance Indicators (KPIs) Total supply chain management costs: –Order processing –Acquiring materials –Managing inventory –4 - 6 percent of sales Upside production flexibility –Number of days required to achieve a 20% increase in production –<= 2 weeks

Supply Chain Doctors Typical Benchmark Key Performance Indicators (KPIs) On time delivery –Percentage of orders fulfilled on or before the customer’s requested date –70 – 100 percent Cash-to-cash cycle time –Number of days between paying for raw materials and being paid for product – days

Supply Chain Doctors 18 Sourcing Supply Base Consolidation Source Selection Make-Buy Decision Supplier Performance Evaluation Supplier Certification Supplier Relations – Understanding Customer Loyalty

Supply Chain Doctors 18 Supplier Certification A guarantee of quality –Good Housekeeping –UL –SAE –ISO –TNCPE –Inspection Free

Supply Chain Doctors 18 Sourcing Supply Base Consolidation Source Selection Make-Buy Decision Supplier Performance Evaluation Supplier Certification Supplier Relations – Understanding Customer Loyalty

Supply Chain Doctors 9 Partnership Relationship Continuing relationship involving – a commitment over an extended time period, – an exchange of information, and – an acknowledgement of the risks & rewards of the relationship.

Supply Chain Doctors Why Long-Term Relationships? A long-term relationship between purchaser and supplier is necessary for best economy. How can a supplier be innovative and develop economy in his production processes when he can only look forward to short-term business with a purchaser? W. Edwards Deming, Out of the Crisis

Supply Chain Doctors Why Long-Term Relationships? Increasing trend toward global supply Higher baseline performance Increasing focus on time to market Dependence upon suppliers for technology

Supply Chain Doctors Family Strengths Research Strong families 20+ years of research Over 6,000 surveyed

Supply Chain Doctors Six Characteristics of Successful Supplier Relationships Trust Good communication patterns Ability to deal with crises (change) Spiritual wellness (principles-centered) Spending time together Appreciation / feedback

Supply Chain Doctors Trust: Concerns Is this the right supplier? What about commitment? Is management committed? What are the implementation issues related to maintaining commitment?

Supply Chain Doctors Special Attention Low spend - high risk Long-Term Relationship High spend - high risk Contractual High spend - low risk (Easily substituted) High Low High Risk Annual Spend Supplier Relationship Matrix Transactional Low spend - low risk Long-term contracts Buying Consortia Partnerships Distribution Frequent visits FMEA

Supply Chain Doctors Communication: Concerns Replace face-to-face communication with technology? Good communication = $$$ Communication between technical groups Role of agent

Supply Chain Doctors Dealing with Change New product dev. process Common improvement process Performance measures Conflict resolution by team leaders

Supply Chain Doctors Shared Principles Principles Centered Leadership Two-Way Performance Measures Follow-through on Commitments

Supply Chain Doctors Spending Time Together Quarterly performance reviews Team building dinners Commitment to keep the schedule

Supply Chain Doctors Appreciation Celebration of critical improvement Recognition distribution Other forms of recognition

Supply Chain Doctors