Bill Michels, President, ADR NA

2. Enhancing Value through Supplier Relationship Management
By
William L. Michels,
President, ADR NA

3. Presentation Agenda
4 Key Points
Managing for Value
Supplier Performance
Supplier Relationships
Words of Wisdom

4. Four Points
4
Point 1
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.

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. •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

12. 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”?

13. Business
Alliances
Preferred
Suppliers
Closeness
Of
Relationship
TIME
(resources required & expected duration of relationship)
Performance Partnerships
Competitive Suppliers
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 on Cost 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 of Cost
•Multiple Sources
•Frequent Negotiations
•Arms length Relationship
•Price Change Measurement

14. Performance Partnerships
Preferred Suppliers
Business Alliances
Competitive Leverage
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

15. Tactical Tools
•Tactical cost management (interrogating cost breakdowns)
•Link continued business to KPI metrics
•Performance reward to drive compliance to specification
•Customer-driven 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

16. 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

17. “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

18. “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

19. •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

20. Contracted Choice
Exclusivity
Duration
Mutuality
A partner is chosen and others are excluded
Coordinated
Co-working
Co-ordination
Closeness Shared 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

21. 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

22. 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

23. • 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
R & D Legal
Supplier
“Sea” of communication

24. INCREMENTAL
TOTAL
VALUE
ENDORSEMENTS
GROWTH
LOWER COST
OF DOING
BUSINESS
TRANSPARENCY
&
HONESTY
LESS
BUREAUCRACY
INNOVATION
COMPETITIVE
ADVANTAGE
SUSTAINABLE
RELATIONSHIPS
SPE PROGRAM

25. Misalignment in Relationships
Organizational
Resource
Issues
Measurement
Tools
Personal
Clash
Vision
&
Direction
Capabilities
&
Competence
Conflicting
Objectives
Individual
Behavior
Poorly Performing Relationship

26. 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

27. 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

28. •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 and Knowledge
Source:
Robert Handfield, Director
Supply Chain Resource Consortium (SCRC)

29. Supplier Relationship Management
•“Our suppliers are only as good as we let them be.”
29
—David W. Johnson, President, Entenmanns Bakeries, June 1966

30. 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