Intro to Supply Chain Management Chapter 7 Rutgers Taitt

Supplier Relationship Management

The discipline of strategically planing for and managing all interactions with the third-party organizations that supply goods or services to an organization to maximize the value of those interactions

- SRM is an organized approach to defining what they need and want from a select group of key suppliers

4 types of suppliers where SRM is typically applied

1. Suppliers that provide high volumes of a product/service

2. Suppliers that provide lesser quantities of a crucial product/service

3. Suppliers that serve many business units of a company or organization

4. Where intensive engineering, manufacturing, and logistics interaction is essential

Traditional Supplier Management VS Supplier Relationship Management

Traditional Supplier Management has competition on price between sales and procurement departments between the buyer and supplier

Supplier Relationship Management has partnering focused on value creation where each department meets with their match between the supplier and buyer (Operations dept communicated w/ operations dept, marketing dept communicates w/ marketing dept. etc.)

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"

10 Keys to developing successful strategic partnerships

1. Building trust

2. Having a shared vision and objectives

3. developing personal relationships

4. establishing mutual benefits and needs

5. gaining commitment from top management

6. managing change

7. information sharing and lines of communication

8. understanding and influencing capabilities

9. continuous improvement

10. measuring performance

Key 1: Building Trust

partners are more willing to work together if they trust each other

Key 2: Shared Vision and objectives

- both partners must share the same vision and have objectives that are both clear and mutually agreeable

- Focus must move beyond tactical issues and toward a more strategic path to corporate success

Key 3: Personal Relationships

Strategic partnerships begin with developing personal relationships between key people at each company

Key 4: Mutual Benefits and Needs

Partnerships should result in a win-win situation

- alliance is like a marriage; if only one part is happy its not likely to last

Key 5: Commitment from top management to support the strategic partnership

Partnerships are successful when top executives actively support the partnership

Key 6: Managing change

companies must be prepared to manage the change that comes with forming new partnerships

Key 7: Information sharing and establishing lines of communication

Both formal and informal lines of communications should be set up to facilitate the free flow of information

Key 8: Understanding capabilities

Key suppliers must have the right technology and capabilities to meet cost, quality, and delivery requirements on time (currently and in the future)

Key 9: Continuous Improvement

- Making a series of small improvements over time eliminates waste in a system

- buyers and suppliers must be willing to improve their capabilities to meet customer requirements continuously

Continuous Improvement Process

Plan: Identify improvement needed and plan how to change

Do: Implement small scale change

Check: Analyze results to see if change was impactful

Act: If successful, implement on broader scale and continuously assess results

(If change didnt work, begin cycle over)

Key 10: Measuring Performance

Cant improve what you dont measure

- Measures related to quality, cost, delivery, and flexibility

- metrics should be understandable, easy to measure, and focused on accurate value added results

Benefits of Strategic Partnerships with suppliers for the buyer:

- Increased operating efficiencies (Lower cost, enhanced service, improved quality, incremental revenue)

- Preferred access to suppliers best people

- Influence over supplier investments & Technology

- preferred access to supplier ideas

- Increased Innovation from and with suppliers

- Sustainable competitive advantage

Benefits of Strategic Partnerships with Suppliers for the Supplier:

- Increased operating efficiencies (Lower cost of sales, increased margins, incremental revenue)

- Greater visibility into buyers purchasing plans

- increased scope of business

- opportunities to develop, pilot, and showcase innovative solutions

- longer term buyer commitments: greater predictability of future business

- sustainable competitive advantage

Supplier Evaluation

a process to identify the best and most reliable suppliers

- Souring decisions are made on facts not perception

- frequent feedback can help avoid surprises and maintain good relationships

- suppliers should be allowed to provide constructive feedback to customer

Relevant metrics of evaluating a suppliers performance

- Price & Cost performance

- Product quality

- Delivery performance

- contractual compliance

- participation in product development initiatives

- cooperativeness in third party production management

- support of ethics and sustainable practices

Purchase cost becomes relatively less important with:

a collaborative relationship with excellent suppliers

Squeezing

squeezing suppliers to generate a lower annual purchasing spend hurts strategic relationships

- often still done (profit leverage effect)

Key supplier selection is typically conducted by:

a cross functional team using evaluation forms or scorecards

Weighted Criteria evaluation system steps

1. Select critical dimensions of performance that are mutually acceptable to both buyer and supplier

2. monitor and collect performance data

3. assign weights to each of the dimensions

4. evaluate performance measures between 0-100

5. multiply dimension rating by weight and sum of the overall score

6. classify suppliers based on their overall score

7. audit and perform ongoing certification review

Supplier classifications

Certified, preferred, acceptable, conditional, developmental, unacceptable

Preferred suppliers

Work with these suppliers in maintaining a competitive position and on new product development

Acceptable suppliers

require a plan from these suppliers outlining how they will achieve the preferred status

Developmental suppliers

Require corrective actions from these suppliers on how they will achieve acceptable level. look for alternative suppliers if these do not achieve acceptability within a fixed period

Performance Measure formula

Rating x Weight = Final Value

Certified Suppliers

a source that, through prior experience and qualification, can provide material of such quality that it needs little, if any, receiving inspection or testing before going into approved stock or production process

benefits of supplier certification programs

- Reducing

- Building long term relationships

- recognizing excellence

- decreasing supplier base

Reducing

reducing the time and labor necessary for the buyer to conduct incoming inspections of products and materials from certified suppliers created cost savings

Supplier certifications programs are used to verify:

that select suppliers operate, maintain, improve, and document effect procedures relating to the buyers requirements for supply elements such as cost, quality, delivery, flexibility, etc.

Criteria used for Internal Certification Programs

- Supplier has no incoming product rejections

- Supplier has no incoming late deliveries

- supplier has no significant negative quality-related incidents

- supplier is ISO-9000 certified or has successfully passed a recent on-site quality system evaluation

- supplier consistently meets a mutually agreed upon set of clearly specified quality performance measures

- supplier has a fully documented process and quality system with cost controls and continuous improvement capabilities

- suppliers processes are determined to be stable and in control

External Certification

Certification from an external organization like the International Organization for Standardization (ISO)

International Organization for Standardization (ISO)

- Founded in 1947

- members from 163 countries

- ISO certification is highly sought after

benefits of ISO certification:

- greater market potential

- compliance with procurement bids

- improved efficiency and cost savings

- higher level of customer service

- heightened staff morale and motivation

External Certification Programs

ISO 9000

ISO 14000

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

- benefits include: reduced energy consumption, environmental liability, waste and pollution, improved community goodwill

8 Quality Management principles ISO 9000 standards are based on:

1. Customer Focus

2. Leadership

3. Involvement of people

4. process of approach

5. systems approach to management

6. continual improvement

7. factual approach to decision making

8 mutual beneficial supplier relationship

ISO certified suppliers are preferred because:

- they have to conform to externally defined set of standards for quality

- easier for procurement to qualify initially and periodically audit

- usually more open to sharing supply chain information

- they welcome building relationships with their cutomers

- they have formal processes in place for continuous improvement of their products, services, and processes

- an independent third party agency does the certification

- firms have to be recertified every 3 years

Supplier Development

Technical and financial assistance given to existing and potential suppliers to improve quality and delivery performance

- can be described as a buyers activities to improve a suppliers capabilities

Supplier Development programs should be designed to achieve:

- Lower supply chain cost

- Increased profitability for all supply chain participants

- increased product quality

- near perfect on time delivery at each point in the supply chain

Supplier Development programed must be aimed at:

improving suppliers performance, NOT bullying them into charging less or simply auditing and rewarding them

- all about providing suppliers with what they need to be successful in the supply chain

Two of the most essential functions of a supplier development program:

- Providing information about products, expected sales growth (suppliers must become extensions of their customers

- Training suppliers to apply lean and six sigma

Supplier Development Process Steps:

1. Identify critical products and services

2. identify the suppliers of those critical products and services

3. form a cross functional team internally to work with the suppliers

4. Identify what issues or gaps exist and what specific improvements need to be made

5. meet with the top management at the supplier to get their support and involvement

6. define details of the agreement and the action plan

7. monitor the status of the projects/action plan and modify strategies as necessary

Supplier Recognition Programs

a program to recognize suppliers who achieve the high-performance standards necessary to meet customer expectations

Three attributes of supplier recognition programs:

1. Companies should recognize and celebrate the achievements of their best suppliers

2. Award winners exemplify true partnerships, continuous improvement, organizational commitment, and excellence

3. Award winning suppliers serve as role models for other suppliers

Benefits of Supplier Recognition Programs

- Motivate Suppliers

- Improve Supplier Loyalty

- Encourage Suppliers to Adapt to the companies culture

- Helps to create Entry Barriers for competitors

- Encourage Supplier Participation in Product Innovation

Supplier Relationship Management Systems

Technology to support development when considering an SRM program

Reasons for a SRM system

to provide a more comprehensive and objective view of a suppliers performance

- help identify and address supplier performance issues

- a system can be used to help make sourcing decisions

SRM system: Part of the process or whole process

Only part of the process

5 Key characteristics to consider in the development and implementation of an SRM system:

1. Automation

2. Integration

3. Visibility

4. Collaboration

5. Optimization

Trends in Supplier Relationship Management

1. Alignment of SRM with Strategic Sourcing

2. Focus on cross-functional engagement

3. Focus on innovation

4. Investment in people & Soft Skills

Still learning (2)

You've started learning these terms. Keep it up!