1. GEOP 4355 Supply Networks: Supplier management
Outline
Supplier selection
Supplier management
Supplier certification
Sources/references used in the preparation of this presentation are listed in the Introduction presentation

2. Supplier selection Supplier management starts with supplier selection.
Key message of supplier selection: supplier vision, mission, and performance must be aligned with the buying company’s priorities.
Criteria to select suppliers
Cost / Discounts/ Payment terms
Quality
Lead time and on-time reliability
Capacity and volume flexibility
Technology, innovation, experience
Firm size, financials, …
Ethical problems, history of bad press,
Systems and Information compatibility
Political stability of country where the supplier is located.

3. Supplier selection
The importance of supplier selection relates to the particular item you are purchasing
Standard/commodity items
Less critical/ relevant
Intermediaries/ industrial distributors who sell similar items
Designed to company specifications
More important, higher dependencies
Direct relationship with the company that makes it for you: direct collaboration.

4. Supplier management Number of suppliers (vendors)
Sole versus multiple sourcing
Sole: strong partnership, less variability, but risk of failure.
Multiple: competition between suppliers, risk mitigation, but more variability and no partner approach.
There has been a strong push for many years to reduce the number of suppliers. To simplify sourcing.

5. Supplier Base Management: This relates to:
Supplier management
Supplier Base Management: This relates to:
management of relationships with suppliers,
the evaluation of suppliers,
scouting new ones.
Determining the number of suppliers is an essential funcion of supplier base management.

6. Supplier management Risk Number of suppliers
Relationship, Ordering and Transportation Costs
Contingency/ failure costs
Procurement costs
slow
few
Number of suppliers

7. Supplier selection/management
Total costs
Relationship, Ordering and Transportation Costs
Contingency/ failure costs
Procurement costs
few
Number of suppliers

8. Supplier management Site based supplier selection/ management
Each unit/site selects suppliers based on its needs/local requirements
Uses local know-how
Direct communication between buyer-source
Unified/ company wide supplier selection/ management
Benefit from economies of scale for contract negotiation (prices and terms)
Use of global know-how

9. Supplier management
Can be part of a strategic process to enter a market
Company X wants to sell product Y in country Z
Country Z will allow it if some components of product Y are made by companies in country Z,
Part of long term relationships
Boeing outsourced significant sections of its latest airplane to companies in Japan. Japan is a major buyer of Boeing aircraft.

10. Supplier management ABC Classification of suppliers
“AA” and “A” Suppliers
= strategically important suppliers
Provide critical components
Large purchase volumes in terms of $
Their materials go into the buyer’s best selling / highest value products
Few alternatives available / Few qualified sources of supply
Design to company specifications/ very complex specifications requiring complex manufacturing or service process (not easily replaceable)
Therefore the buying organization will focus on creating strong relationships with these; tracking their performance closely.

11. Supplier management The “B” suppliers The “C” suppliers In between….
Low risk/ Low cost items
Standard specifications
Many existing alternatives, Many sources
Therefore the buying organization will not spend significant resources on creating strong relationships with these, or in tracking their performance.

12. Supplier management Pareto Principle (80 – 20 rule)
Well known principle, applies to all types of decision processes and analysis

13. Supplier management
For the last years the trend has been to reduce the supplier base (the set of suppliers used by the organization)
Reduce administrative/management cost
Focus on a few relationships (collaboration, negotiation, better terms)
Consolidate transportation/ purchasing operations
Standardize procured items
Risk: when a supplier has problems/fails it has a higher impact on operations.

14. Supplier management Supplier management includes Measurement/ Tracking
Total costs
Quality
On time delivery
Team-based value-engineering efforts (improve sourced item’s value)
Supplier development

15. Supplier management Supplier certification
Programs designed to evaluate suppliers
Goal is to track long term performance that allows some suppliers to become “partners”
Partner suppliers (benefits)
Priority for new items being sourced
No need for incoming inspection
Higher level of information sharing
“Kodak’s Supplier Certification Program recognizes suppliers, who meet or exceed Kodak established requirements and are producing excellent levels of cost, quality and delivery performance. To be considered for this recognition, suppliers must show evidence of a sound and effective quality management system, provide Kodak with assurance and flexibility with delivery, lead time, and demonstrate world-class product/service quality levels”

16. Supplier management Supplier certification
Scorecards: system to evaluate supplier on a consistent basis (list of KPIs)
Defect rate
Fill rate (complete orders)
On time rate (on time versus total orders)
# of Corrective Actions Last Quarter
Average Response and Resolution time for Corrective actions
# of Rework Hours due to Supplier Components
# of Customer Complaints due to Supplier Components