Powerpoint presentation from the workshop 'Measuring the Value of Suppliers' held at Copenhagen Business School, Tuesday 10 March 2015.
Get insight on ongoing development on Supply Chain Management - Workshop by Associate Professor, Kim Sundtoft Hald
4. 4
Understanding value is the key for understanding
exchange
Value = the cornerstone of business market management
(Anderson and Narus, 1999)
Value creation = the essential purpose for a relationship
(Anderson, 1995; Grönroos, 1997; Wilson, 1995)
Value = a trade-off between benefits and sacrifices
(Sinha and DeSarbo, 1998; Ulaga, 1999; Woodruff, 1997)
Ritter (2014)
5. 5
There are many views on value
Cost of ownership
Purchasing costs
Product value
Relationship value
Network value
Time
Value = - price - production costs + sales price premium + extras+ other relationships
Ritter (2014)
7. 7
Four perspectives exist in every relationship
Ritter & Walter (2008)
Supplier CustomerRelationship
Supplier perceives customer value
Supplier perceives own value Customer perceives supplier value
Customer perceives own value
8. 8
Value: (Benefits – Costs)
Perceived Value (PV) =
Perceived
Benefits
Perceived
Costs-
When (PV > 0) there is a perceived payoff from the supplier relationship
and thus an incentive to engage in it
9. 9
Relationship Benefits
• Product Quality
• Delivery Performance
• Service Support
• Personal Interaction
• Supplier Know-how
• Time-to-Market
Relationship Costs
• Direct product costs
• Process costs
Value Drivers in Supplier Relationships
11. 11
Value as comparison over time or across the Supply network
Outcomes given
comparison level (CL)
(Obtained Value) > = < (Expected value (CL))
?
Comparing over Time
Based on Anderson & Narus (1984, 1990)
Comparison Level for
alternatives (CLALT)
(Obtained Value) > = < (Alternative value (CLALT)
?
Comparing across the Supply Network
14. 14
• The perceived net worth of the tangible benefits to be derived
over the life of the relationship (Hogan, 2001).
• ERV = A monetary value (and its distribution).
• Estimating the size and uncertainty attached to the benefits and
costs that drive relationship value.
• Using Monte-Carlos analysis to understand the statistical
distribution of the value that can be derived from the relationship.
Expected Relationship Value (ERV)
17. 17
Monte-Carlo analysis using Excel
Purchasing Volume 70.000.000
SUPPLIER RELATIONSHIP ADMINISTRATION DKK per. Hour RISK Year 1 Year 2 Year 3
Management time 455 50% 120 120 120
Administrative time 140 50% 200 200 200
COST REDUCTION PROGRAM DKK per. Hour RISK Year 1 Year 2 Year 3
Engineering time 263 50% 150 150 150
Price Reductions (% af Purchasing volume) 50% 0,70% 0,70% 0,70%
EARLY SUPPLIER INVOLVEMENT PROGRAM DKK per. Hour RISK Year 1 Year 2 Year 3
Engineering time 263 20% 2.000 2.000
Process Efficiency (% af Purchasing volume) 70% 0,90% 0,90%
Material Reductions (% af Purchasing volume) 70% 0,90% 0,90%
JUST IN TIME PROGRAM DKK per. Hour RISK Year 1 Year 2 Year 3
Engineering time 263 20% 1.000 500
Administrative time 140 20% 150 150
IT Investments 40% 525.000
Reduced inventory slack (% af Purchasing volume) 70% 0,80% 0,80%
19. 19
• Value Drivers in Supplier Relationships.
• What are they in your firm? Your sourcing operation?
• Qualitative assessment (comparing).
• Expected Relationship Value (ERV)
• Make an influence Diagram.
• Assessment of benefits/costs
• Assessment of uncertainties.
• Monte-Carlos analysis (using Excel or other more advance software)
Summary
20. 20
• Multiple applications of the ERV-model in case firms
• How does ERV work in advanced settings?
• What are the obstacles using this approach?
• Access and accuracy of data available in the firm?
• Survey on the practices of value assessment in supplier
relationships
• How do firms measure supplier value?
• How advanced are the methods of assessment?
• When are the methods more advanced?
Next steps in the project