SCM
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SCMCh07-SupplierRelationshipManagement.pptxDiscussion Outline
What is Supplier Relationship Management (SRM)
Keys to Successful Strategic Partnerships
Supplier Evaluation
Supplier Certification
Supplier Development
Supplier Recognition
Supplier Relationship Management Systems
Trends in Supplier Relationship Management
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Fundamentals of Supply Chain Management – McLaury/Spiegle
Discussion Outline
What is Supplier Relationship Management (SRM)
Keys to Successful Strategic Partnerships
Supplier Evaluation
Supplier Certification
Supplier Development
Supplier Recognition
Supplier Relationship Management Systems
Trends in Supplier Relationship Management
2
Fundamentals of Supply Chain Management – McLaury/Spiegle
Supplier Relationship Management (SRM)
SRM is the discipline of strategically planning for, and managing, all interactions with the third party organizations that supply goods and/or services to an organization in order to maximize the value of those interactions.
Most supply professionals view SRM as an organized approach to defining what they need and want from a supplier and establishing and managing the company-to-company link to obtain those needs.
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SRM is about identifying and measuring KEY STRATEGIC suppliers.
SRM seeks to improve profits & reduce costs using tools such as:
Sourcing Analytics
Sourcing Execution
Procurement Execution
Payment and Settlement
Supplier Score-carding
Performance Monitoring
Fundamentals of Supply Chain Management – McLaury/Spiegle
SUPPLIER RELATIONSHIP MANAGEMENT
PURCHASING
MANAGEMENT
STRATEGIC
SOURCING
PROCUREMENT
Plan, Source, Make, Deliver / Return, and Enable
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Discussion – Supplier Management
You are the leader of a materials management department for a large company. One of your suppliers is key to the success of a growing brand in the company. Yet every time there is a drive to sell more product from marketing and sales, the supplier starts to have delivery and quality issues.
What do you do?
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Fundamentals of Supply Chain Management – McLaury/Spiegle
Discussion Outline
What is Supplier Relationship Management (SRM)
Keys to Successful Strategic Partnerships
Supplier Evaluation
Supplier Certification
Supplier Development
Supplier Recognition
Supplier Relationship Management Systems
Trends in Supplier Relationship Management
5
Fundamentals of Supply Chain Management – McLaury/Spiegle
Successful Strategic Partnerships
Strong Supplier Partnerships
Important to achieving win-win competitive performance for the buyer and supplier
These require a strategic perspective as opposed to a tactical position
Involves “a mutual commitment over an extended time to work together to the mutual benefit of both parties, sharing relevant information and the risks and rewards of the relationship”
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Fundamentals of Supply Chain Management – McLaury/Spiegle
Keys to Successful Strategic Partnerships
Shared Vision and Objectives
Both partners must share the same vision and have objectives that are not only clear but mutually agreeable.
The focus must move beyond tactical issues and toward a more strategic path to corporate success.
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Building Trust
With trust, partners are more willing to work together, find compromise solutions to problems, work toward achieving long-term benefits for both parties, and go to the extra mile.
Trust is earned.
It is also easily lost, and almost impossible to regain once lost!
Fundamentals of Supply Chain Management – McLaury/Spiegle
Continuous Improvement
Making a series of small improvements over time results in the elimination of waste in a system
Buyers and suppliers must be willing to continuously improve their capabilities in meeting customer requirements
Keys to Successful Strategic Partnerships (continued)
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The process commonly utilized in continuous improvement is; Plan, Do, Check, and Act:
Plan: Identify an opportunity and plan for change.
Do: Implement the change on a small scale.
Check: Use data to analyze the results of the change and determine whether it made a difference.
Act: If the change was successful, implement it on a wider scale and continuously assess your results.
If the change did not work, begin the cycle again.
Fundamentals of Supply Chain Management – McLaury/Spiegle
Performance Metrics
You can’t improve what you can’t (or don’t) measure
Measures related to quality, cost, delivery, and flexibility are used to evaluate suppliers.
Metrics should be: 1) understandable, 2) easy to measure, and 3) focused on real value-added results [S.M.A.R.T. objectives]
A multi-criteria approach is best
Keys to Successful Strategic Partnerships (continued)
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Total Cost of Ownership (TCO), is made up of all costs associated with the acquisition, use, and maintenance of a good or service
S.M.A.R.T. = Specific, Measurable, Achievable, Relevant, Time-oriented
Fundamentals of Supply Chain Management – McLaury/Spiegle
Benefits for Buyers:
Preferred access to the supplier’s best people
Increased operating efficiencies
Lower costs
Improved quality
Enhanced service
Influence over supplier investments and technology
Preferred access to supplier ideas
Increased innovation from and with suppliers, leading to lower costs and incremental revenue
Sustainable competitive advantage
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Benefits of Strategic Partnerships with Suppliers
Benefits for Suppliers:
Greater visibility into buyer’s purchasing plans
Increased operating efficiencies
Longer term buyer commitments; greater predictability of future business
Increased scope of business and revenue
Lower costs of sales; increased margins
Opportunities to develop, pilot, and showcase innovative solutions
Sustainable competitive advantage
Fundamentals of Supply Chain Management – McLaury/Spiegle
Discussion Outline
What is Supplier Relationship Management (SRM)
Keys to Successful Strategic Partnerships
Supplier Evaluation
Supplier Certification
Supplier Development
Supplier Recognition
Supplier Relationship Management Systems
Trends in Supplier Relationship Management
11
Fundamentals of Supply Chain Management – McLaury/Spiegle
Supplier Evaluation
A process to identify best and most reliable suppliers
Sourcing decisions are made on facts and not on perception
Frequent feedback can help avoid surprises and maintain good relationships.
Suppliers should be allowed to provide constructive feedback to the customer
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Fundamentals of Supply Chain Management – McLaury/Spiegle
It is important to actively monitor a supplier’s performance and provide visibility and feedback on supplier performance at each stage of the evaluation process.
Some relevant metrics include:
Supplier price and cost performance
Product receipt quality
Delivery performance
Financial stability
Contractual and standard compliance
Participation in product development
Cooperativeness in third-party production management
Support of both ethics and sustainable practices
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Supplier Evaluation: Performance
Fundamentals of Supply Chain Management – McLaury/Spiegle
Supplier Scorecard Used for the XYZ Company
| Performance Measure | Rating x Weight = Final Value | ||
| Quality Defects (PPM) | 90 | 0.25 | 22.50 |
| Delivery OTIF | 85 | 0.20 | 17.00 |
| Cost | 80 | 0.15 | 12.00 |
| Responsiveness | 95 | 0.10 | 9.50 |
| Innovation | 85 | 0.10 | 8.50 |
| Corporate Social Responsibility | 90 | 0.10 | 9.00 |
| Customer Complaints | 90 | 0.10 | 9.00 |
| Total Score | 1.00 | 87.50 |
(Table 3.3)
Weighted-Criteria Evaluation System Example (cont.)
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Fundamentals of Supply Chain Management – McLaury/Spiegle
Discussion Outline
What is Supplier Relationship Management (SRM)
Keys to Successful Strategic Partnerships
Supplier Evaluation
Supplier Certification
Supplier Development
Supplier Recognition
Supplier Relationship Management Systems
Trends in Supplier Relationship Management
15
Fundamentals of Supply Chain Management – McLaury/Spiegle
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Fundamentals of Supply Chain Management – McLaury/Spiegle
Reducing the amount of time and resources necessary for the buyer to conduct incoming inspections of products and materials from certified suppliers.
Buyer trains supplier on approved test methods so that supplier can test product before shipment, and provide a Certificate of Analysis (COA)
Buyers may then opt to only test items periodically on incoming inspection rather than with each delivery or lot, providing that the periodic testing confirms the supplier’s results.
Benefits of Supplier Certification Programs
Other Benefits of Supplier Certification
Building long-term relationships
Decreasing the supplier base
Recognizing excellence
Example of Criteria used for an internal Certification Program
No incoming product lot rejections (e.g., less than 0.5 percent defective) for a specified time period.
No incoming non-product rejections (e.g., late delivery) for a specified time period
No significant supplier production-related negative incidents for a specified time period
ISO 9000/Q9000 certified or successfully passing a recent, on-site quality system evaluation
Mutually agreed-upon set of clearly specified quality performance measures
Fully documented process and quality system with cost controls and continuous improvement capabilities
Supplier’s processes stable and in control
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Internal Certification Programs
Fundamentals of Supply Chain Management – McLaury/Spiegle
Two ISO standards commonly used for supplier certification are:
ISO 9000
A series of management and quality standards in design, development, production, installation, and service.
Companies wanting to sell in the global market seek ISO 9000 certification.
ISO 14000
A family of standards for environmental management.
The benefits include reduced energy consumption, environmental liability, waste and pollution, and improved community goodwill.
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Fundamentals of Supply Chain Management – McLaury/Spiegle
External Certification Program (continued)
There are eight (8) quality management principles on which the ISO 9000 series quality management system standards are based:
Customer focus – understand current and future customer needs
Leadership – establish unity of purpose and direction of the organization
Involvement of people – people are the essence of an organization
Process approach – a desired result is achieved through a managed process
Systems approach to management – managing interrelated processes
Continual improvement – performance improvement is a permanent objective
Factual approach to decision making – decision are based on facts and data
Mutually beneficial supplier relationship – interdependent benefits create value for both an organization and its suppliers.
ISO 9000
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Fundamentals of Supply Chain Management – McLaury/Spiegle
External Certification
ISO certified suppliers are frequently preferred by procurement departments
They have to conform to an externally defined set of standards for quality and delivery of service
They are usually more open to sharing supply chain information
They welcome building relationships with their customers
They have formal processes in place for continual improvement of their products, services, and processes
They are easier for procurement to initially qualify and periodically audit
Certification is done by an external register agency
Firms have to be re-certified every three years
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Fundamentals of Supply Chain Management – McLaury/Spiegle
Discussion Outline
What is Supplier Relationship Management (SRM)
Keys to Successful Strategic Partnerships
Supplier Evaluation
Supplier Certification
Supplier Development
Supplier Recognition
Supplier Relationship Management Systems
Trends in Supplier Relationship Management
21
Fundamentals of Supply Chain Management – McLaury/Spiegle
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Supplier Development
Supplier development is the technical and financial assistance given to existing and potential suppliers to improve quality and/or delivery performance.
In simpler terms, it can be described as a buyer’s activities to improve a supplier’s capabilities.
A supplier’s knowledge and the technology that they use to produce the commodity they supply, can be leveraged through supplier development.
Supplier development programs should be designed to achieve:
Lower supply chain total cost
Increased profitability for all supply chain participants
Increased product quality
Near-perfect on-time-delivery at each point in the supply chain
Fundamentals of Supply Chain Management – McLaury/Spiegle
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Supplier Development
A supplier development program must be aimed at improving suppliers performance, not bullying them into charging less or simply auditing and rewarding them.
Two of the most important functions of a supplier development program are:
Providing information about products, expected sales growth, etc. Suppliers need to become extensions of their customers.
Training suppliers in the application of lean and six sigma / quality tools. Asking suppliers to lower their price without giving them the knowledge on how to lower their costs is not sustainable in the long-term.
More about supplier development processes in your book
Fundamentals of Supply Chain Management – McLaury/Spiegle
Tapping into Strategic Supplier’s Knowledge
Strategic Sourcing partners offer the opportunity for a company to extend their intellectual capabilities by involving their external partner base in product development.
Early Supplier Involvement (ESI) - Key suppliers become more involved in the internal operations of the buyer’s company, particularly with respect to new product and process design, concurrent engineering, and design for manufacturability.
Strategic Suppliers are asked to add their knowledge and expertise to the company’s new product development process.
Value Engineering activities help the buyer’s company to reduce cost, improve quality and reduce new product development time
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Fundamentals of Supply Chain Management – McLaury/Spiegle
Discussion Outline
What is Supplier Relationship Management (SRM)
Keys to Successful Strategic Partnerships
Supplier Evaluation
Supplier Certification
Supplier Development
Supplier Recognition
Supplier Relationship Management Systems
Trends in Supplier Relationship Management
25
Fundamentals of Supply Chain Management – McLaury/Spiegle
Supplier Recognition Programs
A program to recognize suppliers who achieve the high performance standards necessary to meet customer expectations.
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The success of the business can depend on the quality and performance of the company’s suppliers.
It is always a good practice for a company to have innovative supplier recognition programs in order to recognize their achievements and reward them for their exceptional performance and services.
Fundamentals of Supply Chain Management – McLaury/Spiegle
Benefits of Supplier Recognition Programs
There are several key benefits of Supplier Recognition Programs that make them valuable for a business organization.
Motivate Suppliers to Perform Better - Can motivate suppliers to excel in terms of their quality, pricing and delivery commitments.
Improve Supplier Loyalty and Commitment - Supplier support is important to ensure that customer delivery commitments are maintained.
Encourage Suppliers to Adapt to the Company’s Culture - If the company treats its suppliers as a part of the family and engages in supplier recognition programs periodically, it can help to bring the suppliers closer to the corporate values, ethics and principles of the company.
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Fundamentals of Supply Chain Management – McLaury/Spiegle
Benefits of Supplier Recognition Programs (continued)
Helps to Create Entry Barriers for Competitors - If the suppliers trust the company, they may be more inclined to sign deals of exclusivity with the company for certain crucial components.
Encourages Supplier Participation in Product Innovation - Recognition to suppliers also brings about their enthusiasm to work closely with the company on new product development.
A properly developed and led supplier recognition program will make major contributions to the organization, its suppliers, and to its customers and stakeholders.
If a company is going to keep and utilize a supplier, there should be a motivation plan that reaches them.
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Fundamentals of Supply Chain Management – McLaury/Spiegle
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Discussion Outline
What is Supplier Relationship Management (SRM)
Keys to Successful Strategic Partnerships
Supplier Evaluation
Supplier Certification
Supplier Development
Supplier Recognition
Supplier Relationship Management Systems
Trends in Supplier Relationship Management
29
Fundamentals of Supply Chain Management – McLaury/Spiegle
When considering a SRM program there are several technologies available to support development.
The reason for a system is to provide a more comprehensive and objective view of a supplier(s) performance
A system will help in identifying and addressing supplier performance issues.
A system can also be used to help make sourcing decisions.
It is important to recognize that an SRM system can only be implemented in line with the associated business process changes.
The SRM system is part of the process, not the whole process by itself.
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Supplier Relationship Management System
Fundamentals of Supply Chain Management – McLaury/Spiegle
Discussion Outline
What is Supplier Relationship Management (SRM)
Keys to Successful Strategic Partnerships
Supplier Evaluation
Supplier Certification
Supplier Development
Supplier Recognition
Supplier Relationship Management Systems
Trends in Supplier Relationship Management
31
Fundamentals of Supply Chain Management – McLaury/Spiegle
Trends in Supplier Relationship Management
Close alignment of sourcing with supplier relationship management - Many companies are determining their negotiation strategies by tying them to their category management strategy, and to their supplier relationship goals.
Focus on cross-functional engagement - A best practice for strategic supplier relationships involves SRM teams at both the company and at the supplier, each led by a relationship manager, who form a steering committee to lead the process.
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Focus on innovation - Companies that engage in more innovation with suppliers, report higher ROI.
Investment in people & “soft skills” - Treat suppliers with the courtesy and respect. Be candid, and able to disagree without being disagreeable. Hold both sides to the same standards.
Fundamentals of Supply Chain Management – McLaury/Spiegle
Discussion – Supplier Management
You are the leader of a materials management department for a large company. One of your suppliers is key to the success of a growing brand in the company. Yet every time there is a drive to sell more product from marketing and sales, the supplier starts to have delivery and quality issues.
What do you do?
If you are going to continue the relationship with a supplier, you need to invest time in building a relationship, setting your expectations, and helping them to be successful.
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Fundamentals of Supply Chain Management – McLaury/Spiegle
