BestChoice SRM: A Simple and Practical Supplier Relationship Management System for e-procurement June 12, 2007 Dongjoo Lee, Seungseok Kang, San-keun Lee, Young-gon Kim, Sang-goo Lee Seoul National University, Korea

Copyright  2007 by CEBT Contents  e-Procurement and SRM  SRM Process  Implementation Template-based Segmentation System Architecture Application  Conclusion DEECS Center for E-Business Technology

Copyright  2007 by CEBT e-Procurement and SRM  Procurement Huge portion of the production cost  E-procurement Advance of the internet, Various software Various data are accumulated Quantitative evaluation of supplier became easier  Supplier selection and relationship management Selecting the best supplier for a product and service is a traditional research area – MAUT, AHP, … Managing strategic relation between a company and suppliers Segmentation DEECS Center for E-Business Technology

Copyright  2007 by CEBT SRM System  There are already various SRM systems By SAS, SAP, and i2 … Integration problem with existing processes or systems Brings the burden to change existing processes or systems  How to solve integration problem? Do not change existing processes and systems!! Just add or change necessary parts!!  Core functionalities of SRM!! Evaluation of the target Analysis of the evaluation Segmentation of the target DEECS Center for E-Business Technology

Copyright  2007 by CEBT General Procurement Process  Generally similar products are grouped into a sourcing group (SG)  Suppliers are mapped to different SGs according to the item they supply  Sourcing managers handle the total sourcing process and manage suppliers DEECS Center for E-Business Technology Need for Item Catalog Search & Registration Search Candidate Suppliers Send RFQ Receive Quotes Evaluate Suppliers Contract

Copyright  2007 by CEBT Fundamental Principle in SRM  Suppliers must be managed differently according to their strategic position determined by what they supply how well they do it  Example of auto industry DEECS Center for E-Business Technology Strategic – a high value input that may be useful in differentiating the buying firms Non-strategic – necessary but not strategic transmissionengineair conditioner belttirebattery

Copyright  2007 by CEBT The real problems  What are the really strategic products and suppliers? Segmentation – Strategic positioning of suppliers  Why are the products and suppliers strategic? Evaluation and visual analyses – BestChoice DEECS Center for E-Business Technology CompetitiveStrategic NormalBottleneck High Low High Low

Copyright  2007 by CEBT SRM Process  Strategic planning Planning, establishing policies on how to segment, evaluate, and manage suppliers  Segmentation Determine which items and suppliers are strategic – Evaluate and analysis its results May change as a company’s strategy changes  Managing suppliers Assign management policies Monitor supplier performance DEECS Center for E-Business Technology

Copyright  2007 by CEBT SRM Process with BestChoice SRM Establish Supplier Evaluation Policy for each Sourcing Group Establish Supplier Management Strategy for each Sourcing Group Segment Sourcing Groups Segment Suppliers Assign & Apply Management Strategy to Each Segment Monitor Suppliers DEECS Center for E-Business Technology Strategic Planning Strategic Planning Segmentation Managing Suppliers Managing Suppliers

Copyright  2007 by CEBT Evaluation Policy  From BestChoice  Measure strategic importance of SGs  Calculate utility of suppliers  Convert abstract value to numerical value using MAUT, AHP  Data preparation DW, Survey DEECS Center for E-Business Technology

Copyright  2007 by CEBT DEECS Center for E-Business Technology Calculation  Multi Attribute Utility Theory (MAUT) The value of alternatives consist of measures over the criteria contributing to worth; all converted to a common scale of utility

Copyright  2007 by CEBT SG Segmentation  Depends on a company’s strategy  Performed in two-dimensional space  Allow various segmentation strategies by changing the evaluation policy  Example Risk of Supply (RoS) : Easiness of Item Replacement (EoIR) + Easiness of Supplier Replacement (EoSR) Importance of SG (IoSG) : Total purchasing amount DEECS Center for E-Business Technology CompetitiveStrategic NormalBottleneck High Low Risk of Supply High Low Importance of SG

Copyright  2007 by CEBT Supplier Segmentation  Suppliers are segmented by evaluation score indicating how well they supply depending on the SG of item they supply DEECS Center for E-Business Technology HighLow RoS + IoSG High Low SG 1 SG 2 SG n ABCD Evaluation Score of Supplier Line ALine B Line C

Copyright  2007 by CEBT Template-based Segmentation  Segmentation Template (ST) Description of how to segment SGs and suppliers Flexible segmentation DEECS Center for E-Business Technology

Copyright  2007 by CEBT Segmentation Process DEECS Center for E-Business Technology Step 1. Register Segmentation Project Step 2. Choose Segmentation Template Step 3. Select Segmentation Targets Step 4. Integrate Raw Data From DW & Transactional DB Step 5. Segment Sourcing Groups Step 6. Segment Suppliers Step 7. Apply Segmentation Results to SGs & Suppliers Preparation Registration Execution Application

Copyright  2007 by CEBT System Architecture DEECS Center for E-Business Technology DW SRM DB Master DB OLAP System e-Procurement System SRM System Sourcing Group Manager Supplier Manager Monitoring Tool Segmentation Project Manager Segmentation Template Manager Evaluation Manager Master Data Synchronizer Transporter DW Interface Master Data Interface RMI

Copyright  2007 by CEBT Application  Implemented as a web application following the J2EE architecture.  Installed at eNtoB, one of the major commercial e-Procurement agencies in Korea. DEECS Center for E-Business Technology

Copyright  2007 by CEBT Application - SG Segmentation DEECS Center for E-Business Technology

Copyright  2007 by CEBT Application - Supplier segmentation DEECS Center for E-Business Technology

Copyright  2007 by CEBT Application - Analysis of evaluation DEECS Center for E-Business Technology

Copyright  2007 by CEBT Conclusion & Future work  Conclusion Suggest segmentation strategy and process which is independent from the company’s systems or processes Suggest dynamic segmentation based on the segmentation template Implemented and installed the system at commercial e-procurement agency BestChoice SRM is a practical approach to solving the integration problem with existing systems of a company  Future work Validation & verification – A survey of sourcing managers indicated that the system is useful in evaluating and segmenting SGs and suppliers – Quantitative results for BestChoice SRM performance DEECS Center for E-Business Technology