Gaining Competitive Advantage through Supplier Collaboration and Supplier Relationship Management
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If you have any questions or comments, please send them to connect@tracegains.com. We look forward to hearing from you. Race to win, rather than race to the bottom! Continued consolidation of the food supply base will lead to more powerful and assertive customers in some markets. These customers are placing increasing demand on the entire supply chain for reduced cost and higher levels of value delivery. While many companies focus on price reduction as a solution they soon realize that there is only so much supplier margin and they soon become in effective in trying to meet the increasing demands of the customer and company management. They also realize that there is a significant cost and time involved in changing and developing new suppliers. The solution to increasing demand for value is to get business alignment across the entire supply chain. This requires value-based relationships will require substantial changes in behavior by the buyer and seller. This webinar will detail the need to establish clear processes through which buyers and suppliers interface and collaborate. The focus is on building and developing a Supplier Relationship Management (SRM) focus for your business. Things covered in the seminar: -How can a company build a process that delivers cost and value improvement Year on Year Understanding the Supplier Relationship Management Process -Identifying which suppliers are good candidates for SRM -How to drive collaboration with suppliers
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Gaining Competitive Advantage through Supplier Collaboration and Supplier Relationship Management
- 2. Q&A
- 3. Today’s Presenters Gary Nowacki CEO TraceGains William “Bill” Michels President President ADR NA, ADR-ISM China, ISM Services Companies
- 4. Enhancing Value through Supplier Relationship Management By William L. Michels, President, ADR NA
- 5. Presentation Agenda 4 Key Points The PACE Model Supplier Performance Supplier Relationships Words of Wisdom
- 6. Four Points Point 1 The Food Industry will continue to consolidate. The result of supply chain consolidation will be competing dedicated chains. Point 2 The leanest, most efficient supply chains will have competitive advantage. Point 3 Point 4 The future requires strategic positioning, collaboration and value extraction. 6
- 7. Model of Price and Cost Evolution Stage One Price Drift Stage Two Price Down Stage Three Cost Down Stage Four Cost Out Purchase Price SupplierCost © ADR NA 7
- 8. Stage One Price Drift Stage Two Price Down Stage Three Cost Down Stage Four Cost Out Purchase Price SupplierCost Model of Price and Cost Development Gaining Tactical Control Increasingly effective segmentation & appropriate relationship strategies © ADR NA 8
- 9. Stage One Price Drift Stage Two Price Down Stage Three Cost Down Stage Four Cost Out Purchase Price SupplierCost Using Appropriate Techniques Senior/ Cross-functional Functional Operational Strategic Tactical Techniques Involved Management Effort © ADR NA 9 Competition Tactical Relationship Cost Gainsharing Strategic Relationship Strategic Rationalization Tactical Rationalization Breakout Incentivization
- 10. Summary of the Features Stages in the Price/Cost Model Price Drift Price Down Cost Down Cost Out Stages in the Price/Cost Model Adversarial Competitive Collaborative Integrated Supplier’s cost structure Unknown Challenged Transparent Negotiated Pricing mechanism with supplier Opportunistic/ Market Competition/ Threat Cost/ Principled Target Supply market/ cost understanding of buyer Little or none Basic Developing Expert Supplier’s margin Not managed Under pressure Challenged Agreed © ADR NA 10
- 11. What happens Next? Contract Signed and Implemented—Price and Potential value benefits established Price Agreed Value Benefits Unidentified Value Benefits Strategic Sourcing…and Then? Sourcing Phase Supplier Management Phase Time Value
- 12. Strategic Sourcing in a Perfect World Does this happen every time? Sourcing Phase Supplier Management Phase SRM Planning SRM Visioning Relationships Well-Aligned and Managed, Performing Well SRM Implementation Strategies and Toolkits Time Value
- 13. Relationships Well-Aligned and Managed, Performing Well Relationships Poorly-Aligned and Managed, Performance Drifting Relationships Misaligned, Under-managed and Non- Performing Strategic Sourcing in the Real World Sourcing Phase Supplier Management Phase SRM Planning SRM Visioning Powerful Implementation of SRM Strategies and Toolkits Inadequate Implementation of SRM Strategies and Toolkits "Deal & Forget" Little Active Management of Suppliers Time Value
- 14. Relationships Well-Aligned and Managed, Performing Well Relationships Poorly-Aligned and Managed, Performance Drifting Relationships Misaligned, Under-managed and Non- Performing Strategic Sourcing in the Real World Sourcing Phase Supplier Management Phase SRM Planning SRM Visioning Powerful Implementation of SRM Strategies and Toolkits Inadequate Implementation of SRM Strategies and Toolkits "Deal & Forget" Little Active Management of Suppliers Time Value Without effective Supplier Management most of the potential value available from strategic sourcing can/will be lost within 6 -18 months
- 15. Customer of Choice A customer of choice is defined as a company that consistently receives competitive preference for scarce resources from a critical mass of suppliers. —Robyn Bew, Procurement Strategy Council Corporate Executive Board
- 16. Consistency •The supplier consistently addresses your organization’s needs ahead of those of other companies (perhaps including competitors). Scarcity •The resources in question–whether materials, services, new ideas, or supplier staff–are limited in availability. Critical Mass •Your company receives this type of preferential treatment from more than just the small handful of “strategic” suppliers. •Provides the ability to secure support for a wide range of business needs. How do you know if you’re a customer of choice? Robyn Bew Procurement Strategy Council Corporate Executive Board
- 17. •75% of suppliers say they regularly put most-preferred customers at the top of allocation lists for materials or services in short supply on a regular basis •82% say that these customers consistently get first access to new product or service ideas and technologies •87% of suppliers offer unique cost reduction opportunities to their most-preferred customers first Sizing the Opportunity •Start by looking at yourself as suppliers do •Use interactions with suppliers as an opportunity to uncover “hidden” decision criteria •Being a customer of choice is as much about selling as it is about buying •Low cost-to-serve customers are as attractive to suppliers as low- cost suppliers are to buyers Becoming a Customer of Choice Customer of Choice Robyn Bew Procurement Strategy Council Corporate Executive Board
- 18. Identify the “baseline” relationship and set goals for improved return on investment To establish where the real relationship differs from the “nominal” relationship. To shift power in the relationship To address any gaps in the relationship Why Have Relationship Improvement “Tools”?
- 19. Business Alliances Preferred Suppliers Closeness Of Relationship TIME (resources required & expected duration of relationship) PerformancePartnerships CompetitiveSuppliers x x x x x x x x x x x x x x x x x x x xx x x x x Supplier Relationship Types Identify and invest in the appropriate relationship Key Features Performance Partnerships Business Alliances •Single/dual sourcing •Joint Focus onCost and Quality •Managed Risk •Technology Sharing •Key Performance Indicators (KPIs) •Balanced Scorecard •Single Sourcing •Dedicated Resources •Mutual Dependency •Shared Risk •Joint R & D •Exclusive Rights •Communication Plan •Transparent Metrics Preferred Suppliers Competitive Suppliers •Fewer evaluated sources •Short Term Agreements •Regular Benchmarking ofCost •Multiple Sources •Frequent Negotiations •Arms length Relationship •Price Change Measurement
- 20. PerformancePartnerships PreferredSuppliers BusinessAlliances CompetitiveLeverage x x x x x x x x x x x x x x x x xx x x x x Closeness of Relationship Close Distant Mapping Relationship Closeness
- 21. Tactical Tools • Tactical cost management (interrogating cost breakdowns) • Link continued business to KPI metrics • Performance reward to drive compliance to specification • Market testing with unpredictable competition • Price benchmarking and price guarantees • Action Plans • Operational Reviews Strategic Tools • Strategic cost management (transparent business model) • Link joint marketing to KPI metrics • Incentives for meeting stretch targets • Supplier-driven market testing to derive sources of advantage • Joint problem solving using DMAIC • Market/Customer Reviews Typical Approaches
- 22. Supplier Management Process ‘Hard’ Relationship Attributes ‘Soft’ Relationship Attributes Perspectives & attitudes of individuals (subjective view) ‘Best Fit’ relationship (vision) An Organizational perspective (objective view) Gap Analysis (diagnosis) More effective relationship management (delivery) Relationship Mapping Contracting and Performance Measurement Continuous Improvement Tool kit Value Enhancement Tool kit Supplier Matching Portfolio Analysis Supplier Preference Relationship Needs Analysis Using Competition and Negotiation to maximize value delivery Generic Phase. Steps applied to entire Supply Base to select appropriate Relationship Model Specific Phase. Steps applied to appropriate segments of Supply Base (example above is Strategic Preferred Competitive Performance Partnership Business Alliance
- 23. “Hard” Relationship Attributes Competitive Key Performance Alliance Sources Many Limited One Single Dependency None Reduced Managed Reliance Goals Unknown Conflicting Different, but Known Mutual Organization Separate Accommodated Dedicated Integrated Change Management Re-source SLA KPI Continuous Improvement Review Process Fire fighting Measured Driven Open Performance Measurement Not considered Accommodated Compatible Empathizes Rewards Contested Divided Maximized Grown Dispute Resolution Imposed Contractual Principled Principled Tactical Strategic
- 24. “Soft”Relationship Attributes Competitive Key Performance Alliance Expected Continuity None Short to Medium Long Permanent/very Long Trust None Sufficient High Complete Management Attitude Exploitative Positive Compatible Driven Competence Not considered Accommodated Developing Investment Personal Relationships Often Intrude Sometimes Considered Developing Core Competence People Not considered Selected Team Common Culture Not considered Accommodated Compatible Empathizes Communications Arms Length Managed Driven Open Owner Contested Buyer Joint Mutual Tactical Strategic
- 25. • Remember to always consider the balance of power • Power will drive relationship dynamics such as commitment, value-congruence and trust What is the "Real”Relationship? Nominal Relationship Real Relationship
- 26. Contracted Choice Exclusivity Duration Mutuality A partner is chosen and others are excluded Coordinated Co-working Co-ordination ClosenessShared risk and reward Partners work together harmoniously Creative Collaboration Creativity Significance Synergy Partners create something new out of their interaction Who Has the Power Here? Temporary Trust Equality (Equivalence) Symmetry Trust One party drives the partnership and requires consent
- 27. 5 Step Supplier Management Process Buyer/Supplier Daily Operations Performance Information Collection: • IT Systems • Human interaction Supplier Scorecard Action Item Register Top-to-Top Reviews Operational Reviews Day-to-Day Interaction
- 28. Top-to-Top Reviews Operational & Management Team Reviews Day-to-Day Interaction & Execution Top-to-Top Review Objectives Conduct high level business and performance reviews Reinforce/support relationship objectives Discuss escalated issues from management team Monitor key new product development Operational Review Objectives Monitor performance vs. scorecard Manage cost/value improvement efforts Resolve issues escalated from day to day Benchmark supplier to market Lead supplier development efforts Track benefits received from agreement Day-to-Day Objectives Place/coordinate orders Manage product/service flow Collect performance data Escalate issues Supplier Management Model
- 29. • Agree procurement “owns” supplier relationship • Agree category objectives & supplier management strategy • Develop supplier communication strategy • Provide stakeholders supplier conditioning training • Proactively manage communications to ensure appropriate stakeholders “in the loop” and “on message” • Educate stakeholders on importance of supplier communication management & discipline Managing Internal Supplier Communication Manufacturing Strategic Planning Finance Procurement Supply Chain Quality Legal R & D Supplier “Sea” of communication
- 30. INCREMENTAL TOTAL VALUE ENDORSEMENTS GROWTH LOWER COST OF DOING BUSINESS TRANSPARENCY & HONESTY LESS BUREAUCRACY INNOVATION COMPETITIVE ADVANTAGE SUSTAINABLE RELATIONSHIPS SPE PROGRAM
- 31. Misalignment in Relationships Organizational Resource Issues Measurement Tools Personal Clash Vision & Direction Capabilities & Competence Conflicting Objectives Individual Behavior Poorly Performing Relationship
- 32. Causes of Misalignment Vision & Direction Organizations have differing goals Future Investment not forthcoming Priority given to other customer’s Organizational Organizationally—misfit, potential service conflicts Poor communication to stakeholders Lack of local interest—benefits accrue elsewhere Resource Issues Imbalance between parties–either way Lack of availability Timing Measurement Tools Inappropriate or out of date measures Lack of review or actions Functional perspective—feedback impersonal
- 33. Causes of Misalignment Personal Clash Clash of personalities or individuals Historical or incompatible Educate or eliminate Conflicting Objectives Maybe personal, functional or divisional Lack of understanding of priorities Capabilities & Competencies Poor choice of team members Lack of training Lack of adequate recruitment Individual Behavior Inappropriate actions undermine progress Inability to see the big picture Blame culture
- 34. •Leadership, Decision-making, Influencing, Compromising Team Building •Project Scoping, Goal-Setting, and Execution Strategic Planning Skills •Presentation, Public Speaking, Listening and Writing Interpersonal Communication Skills •Web-enabled Research and Sourcing Analysis Technical Skills •Cost Accounting and Business Case Analysis Financial Skills •Ethics, Facilitation, Conflict Resolution, and Creative Problem Solving Relationship Management Skills •Contract Writing and Risk Mitigation in a Global Environment Legal Issues A Supply Manager’s Core Skills andKnowledge Source: Robert Handfield, Director Supply Chain Resource Consortium (SCRC)
- 35. Supplier Relationship Management • “Our suppliers are only as good as we let them be.” —David W. Johnson, President, Entenmanns Bakeries, June 1966 35
- 36. Barrier 1 Organization goal alignment Barrier 2 Selecting the right supplier Barrier 3 Internal collaboration GOAL Barrier 4 Identifying incremental value OUR PATH The SRM Journey
- 38. Turning Data Into Information Typical 24/7 Detection& Compliance TraceGains AutomaticScorecarding Difficult to search, analyze, andtake action Instant eNotification Alerts No More Spreadsheets: Documents to Data Static Data COAs Supplier Documents Finished Goods Quality Machine Maint. Receiving Receiving Inspections Lab Results Auto. P.O. Acknowl. Plant Floor Feedback Finished Goods QA COA ActionForm™
- 39. TraceGains Automation Solves Many Problems GFSI Labeling FSMA Audits
- 40. Q&A Gary Nowacki gary.nowacki@ tracegains.com Bill Michels wmichels@usa.net