Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations

Share the rationale for Strategic Supplier Management (SSM) Define an approach for SSM Illustrate tools that can be used for SSM Session Objectives

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Strategic Supplier Management (SSM) is The systematic, enterprise-wide assessment of suppliers’ assets and capabilities with respect to overall business strategy; Determination of what activities to engage in with different suppliers; Planning and execution of all interactions with suppliers in a coordinated fashion across the relationship lifecycle, To maximize the value realized through those interactions What is Strategic Supplier Management? Source: Adapted from “Maximizing the Value of Supplier Relationships“ SSM Rationale

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Increased outsourcing and reliance on suppliers Globalization of business and of supply chains Greater complexity in managing suppliers Increased supply risks View of suppliers not only as a cost, but also as a strategic input to our bottom line Why we need SSM SSM Rationale

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Align supplier capabilities with business requirements Improve supplier capabilities to increase value for the Company Achieve cost reduction targets or service level objectives Collaborate to meet continuous improvement objectives Reduce inventory levels (in house and at supplier locations) Accelerate time to commercial manufacturing Implement frameworks to monitor environmental, social responsibility or supplier diversity objectives Benefits of SSM SSM Rationale

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations 1.Secure active support from leadership 2.Identify participants (by commodity, spend category, and site) 3.Link supplier goals to corporate goals 4.Encourage and facilitate communications between parties 5.Create formal documents and processes to capture results How do you establish a SSM program? Getting Started SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Which suppliers should you focus on? Core, StrategicHigh Volume/ Spend Sole Source/ Critical SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Tiers help segment suppliers SSM Approach Higher Tier SuppliersLower Tier Suppliers Global resource coordinationLocal or regional supply base Multi-level communication network Site-specific resource and communication coordination Joint development of shared goalsEffective and efficient transactions Aligned technology and innovation road-mapping Independent goal setting Long-term focusedShort term planning horizon

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Illustrative Supplier Segmentation Criteria SSM Approach Criteria AreaSpecific Criteria Evaluated Financial Annual spend Expected change in spend Switching costs Risk Supply market profile Approved second source status Failure impact Opportunity Opportunity to harness incremental value Supplier willingness to engage in SSM Supplier cultural alignment

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Once you have selected your suppliers, what should you measure? Quality Technology Delivery Service Cost SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Quality Metric Objectives Quality goal of zero defects Defect free raw materials, parts, assemblies and services Quality expected to be achieved through –Superior design –Continuous improvement –Process, test and inspector controls –Reduced product variability All materials must be fit for intended use SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Sample Quality Metrics & Goals Incoming Inspection Supplier Corrective Action Request Supplier Audit Results 95% acceptance rate Response deadline and action plan Documented audits and scoring mechanism SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Technology Metric Objectives Demonstrated commitment to technology to meet current and future needs Proven thought leadership Tangible benefits delivered through technological advances –Reduced costs –Reduced cycle time SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Sample Technology Metrics & Goals % Of Revenue Spent On Technology Innovation & Awards Documentation & Compliance Within top quartile of peer set Nationally or globally recognized within industry ISO certification, etc. SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Delivery Metric Objectives Accurate delivery quantity Timely delivery shipments Lead time stability/reduction SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Sample Delivery Metrics & Goals No tolerance for over/under shipments On time delivery % variance from forecast to actual # of out of stocks Duration of plant closures or line delays due to late shipments SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Service Metric Objectives Response time for normal inquiries –Engineering samples and material specifications –Price and availability –Repair and maintenance Communication of process changes and/or quality problems before they happen Accurate bill of materials and invoices SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Sample Service Metrics & Goals Rapid response time for standard issues Proactive communications Accurate billing 24 hours to provide response Account management plan, relationship map, escalation plan Zero error rate in deliveries to P.O. specifications SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Cost Metric Objectives Best price for product/service Joint commitment to cost reduction programs Transparency SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Sample Cost Metrics & Goals Best price Annual cost reduction goal Pricing Transparency Breakdown of cost components “Cost plus” pricing models Benchmark rates Gain sharing agreements % of revenue Pass through invoices Guaranteed profit % SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Best Practices In SSM Common Processes/Tools Performance Improvement Action Item Tracking Supplier Satisfaction Survey Formal Issue Escalation Process Trigger Points for Elimination of Underperforming Suppliers Tiered Awards and Incentives Program SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations SSM Formats “Top to Top” Quarterly Business Reviews (QBRS) Continuous Improvement SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Audiences and objectives for different SSM formats Top to Top Quarterly Business Reviews (QBRS) Continuous Improvement Audience Objectives Executive leadersShare vision Operational relationship owners Maintain accountability All participants Set goals Evolve SSM Approach

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Tools to execute Top to Tops SSM Tools Top to Top Quarterly Business Reviews (QBRS) Continuous Improvement Format: In person Frequency: Annually Critical Success Factors: –Appropriate participation –Clear agenda and priorities –Agreed outcomes and actions

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Example Biotech Firm Uses Annual Supplier Risk Assessments To Inform SSM Plan SSM Tools

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Tools to execute QBRs SSM Tools Top to Top Quarterly Business Reviews (QBRS) Continuous Improvement Format: In person or telecon Frequency: Quarterly Critical Success Factors: –Functional participation –Metrics and performance data –Remediation and action plan –Links to incentive compensation (as appropriate)

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Some form of scorecard data is required SSM Tools Yellow – Some issues exist within this category, but have been identified and are being reviewed/ addressed 50% - 74% average score in category Red – Issues exist within the scope of the category Issues are persistent/ reoccurring, and are not being resolved in a timely manner to satisfaction Below 50% average score in category Green – No major issues exist 75% or greater average score in category Supplier Name Annual Objectives: Date of Evaluation Panel 1 - Account SupportScore50Status Y Panel 2 - QualityScore95Status G Panel 3 - DeliveryScore46Status R Panel 4 - ValueScore87Status G Score76Overall SM Program Status Y Issues & Opportunities - Panel 5 - Overall Performance & Customer Satisfaction Issues & Opportunities -

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Sophisticated SSM platforms exist SSM Tools Illustration of Ariba SSM tool

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations In these QBRs, you must document agreed upon actions and outcomes… SSM Tools Illustrative corrective action plan from QBR

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Tools to execute QBRs SSM Tools Top to Top Quarterly Business Reviews (QBRS) Continuous Improvement Format: Various Frequency: Ongoing Critical Success Factors: –Anyone can generate ideas –Document and track progress against them –Delineate between suppliers who do – and don’t – participate

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Sample Continuous Improvement Opportunity Plan SSM Tools Illustrative Continuous Improvement Plan

Strategic Management of Suppliers: Maintaining Efficient Manufacturing Operations Start with your most important suppliers Agree on format, frequency and type of SSM program Generate appropriate participation Execute consistently Promote success and outcomes to broaden participation Summary Strategic Supplier Management