supply chain exam 3

supplier relationship management (SRM)

the discipline of strategically planning for and managing all interactions with the third-party organizations that supply good or services to an organization to maximize value and minimize risk

effective srm

• involves a cyclical three-step process to ensure resources are focused on the most critical partners:

  • supplier segmentation

  • strategy development

  • execution and monitoring

supplier segmentation

categorizing the supplier base based on strategic importance, spend volume, and potential risk. tools like Kraljic Matrix are often used to group vendors into categories like strategic, leverage, bottleneck, and non critical

strategy development

creating tailored engagement plans for each segment. strategic suppliers might involve joint innovation labs, while transactional supplier focus on process automation and cost efficiency

execution and monitoring

implementing the strategy through regular communication and performance tracking. this includes using supplier scorecards to measure KPIs such as on-time delivery, quality, and responsiveness

SRM is part of the rollout of strategic sourcing and typically applied with suppliers:

• providing high volumes of a product/service

• providing lesser quantities of a crucial product/service

• that serves many business units of a company or organization

• where intensive engineering, manufacturing, and logistics interaction is essential

traditional supplier management vs supplier relationship management

traditional - competition on price

supplier - partnering focused on value creation

strong supplier partnerships

• successful SRM shifts focus from purely transactional “arm’s length” interactions → strategic partnerships that drive long-term value

  • require a strategic perspective as opposed to a tactical perspective

• “mutual commitment over an extended time to work together to the mutual benefit of both parties, sharing relevant information, the risks and rewards of the relationship”

keys to 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

building trust

• trust is earned - it is also easily lost and almost impossible to regain once lost

• with trust, partners are more willing to work together, find compromise, work towards long-term benefits, go the extra mile

• “bedrock” of any successful SRM

shared vision and objectives

• shared vision that are clear and mutually agreeable

• beyond tactical issues and toward a strategic path to success

• operational excellence

• increased innovation

• financial impact

• supply chain resilience

operational excellence

real-time data sharing and collaborative forecasting reduces stockouts and improves inventory levels

increased innvoation

early supplier involvement in R&D leverages their technical expertise to improve product quality and sustainability

financial impact

highly aligned partnerships can lead to significant reductions in working capital and increased profitability

supply chain resilience

shared goals foster a support network during crises, enabling faster response times and mutual problem-solving

personal relationships

• relationships w key people in the company

• business driven by logic, execution by the people - they communicate and make things happen

• best practices for building rapport:

  • face to face interaction

  • consistent point of contact

  • “two way street”

mutual benefits and needs

• win-win situation - compatible needs

• willing to work together to ensure that both are satisfied with the partnership

• risk mitigation

• priority treatment

• vested sourcing

risk mitigation

shared forecasts and real time data exchange allow both sides to anticipate and react faster to market shifts

priority treatment

reliable buyers often earn “customer of choice” status, ensuring they receive priority access to scarce materials during global shortages

vested sourcing

moving towards “outcome-based” contracts where the supplier’s profit is tied to buyer’s success

commitment from top management to support the strategic partnership

• highest management level commitment

• partnerships are successful when top executives actively support the partnership

• executive sponsorship

• long term vision

• risk tolerance

executive sponsorship

each strategic supplier is assigned an internal executive sponsor who holds high level quarterly reviews with the supplier’s leadership

long term vision

leaderships communicates a 3-5 year roadmap to suppliers, allowing them to invest in their own capacity with confidence

risk tolerance

management supports the procurement team when they choose a more expensive, resilient partner over a cheaper, high risk one

managing change

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

• shifting an organization’s internal culture from a “price-first” mindset to a value first partnership model

• introducing new KPIs for innovation contributions, lead time reductions, and supplier satisfaction scores replacing year over year savings as KPI

• SRM isn’t just procurement - engineering, operations, finance

info sharing and lines of communication

• formal and informal comm should be set up

• implement transparency in relationship - what data is used to track them to feel supported not monitored

• strategic buyers share their demand forecasts and product roadmaps to suppliers can plan their own capacity and R&D

understanding capabilities

• right tech and capabilities to meet cost, quality, and delivery requirements on time

• aligned capabilities ensure that a supplier’s technical, operations, and cultural strengths directly mirror your organization’s strategic needs

• strategic partners should have the engineering talent to help you design products, not just manufacture them

continuous improvement (kaizen)

• making series of small improvements in quality, cost and efficiency over time and eliminates waste in the system

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

• joint problem solving - focus shift on who to penalize to how do we fix it

• waste elimination - partners work together to identify non value added steps in supply chain

PDCA Cycle

Plan - set goals - identify each improvement needed and what change is necessary to improve and plan for that change

Do - implement changes - implement on a small scale to see if it improves the process before full implementation

Check - measure results via scorecards - use data to analyze results to see if it made a positive impact

Act - standardize the improvement - if the change was successful, implement it on a broader scale and continuously assess your results

measuring performance

• you can’t improve what you don’t measure

• measure quality, cost, delivery, flexibility

• SMART objectives - specific, measurable, achievable, relevant, time oriented

benefits of strategic partnerships for buyers

• increased operating efficiencies - lower cost, enhanced service, incremental revenue, improved quality

• preferred access to the supplier’s best people

• influence over supplier investments and tech

• preferred access to supplier ideas

• increased innovation from and with suppliers

• sustainable competitive advantage

benefits of strategic partnerships for suppliers

• increased operating efficiencies - lower cost of sales, increased margins, incremental revenue

• greater visibility into buyer’s 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

• process to identify the best and most reliable suppliers

• sourcing decisions are made on facts and not on perception

• frequent feedback can avoid surprises and maintain good relationships by holding regular review meetings

• constructive feedback - 2 way communication

supplier evaluation: performance

• visibility and feedback needed on performance

• metrics:

  • price and 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

evaluating and selecting key suppliers

• purchase costs become less important

• excellent suppliers can drive costs out

• profit leverage effect - squeezing suppliers to generate a lower annual purchasing spend hurts strategic relationships

• key supplier selection conducted by a cross functional team using evaluation forms or scorecards

supplier evaluation: weighted criteria

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 overall score

6. classify suppliers based on their overall score - certified, preferred, acceptable, conditional, developmental, unacceptable ..

7. audit and perform ongoing certification review

weighted criteria eval system

• preferred - work with these suppliers in maintaining a competitive position and on new product development

• acceptable - require a plan from these suppliers outlining how they will achieve the prefered status

• developmental - require corrective actions from these suppliers on how they will achieve acceptable level

supplier certification programs

• one of the elements for building a robust strategic supplier partnership is having a well-defined and established supplier certification program

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

• admin of a certified supplier program requires planning and long term attention

benefits of supplier certification programs

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

• building long term relationships

• recognizing excellence

• decreasing the supplier base

supplier certification purpose

• verify that select suppliers operate, maintain, improve, and document effect procedures relating to the buyer’s requirements for supply elements like cost, quality, delivery, and flexibility

• differentiate one supplier from another, candidates for strategic supplier alliance

internal certification programs examples

• supplier has no incoming product rejections, late deliveries, negative quality related incidents for a specified period

• ISO 9000 certified if they successfully passed a recent on-site quality system evaluation

  • meets mutually agreed upon set of quality performance measures consistently

  • fully documented process and quality system

  • stable and in control processes

external certification

international organization of standardization (ISO) - ISO certification highly sought after bc it represents achieving and maintaining a standard of excellence verified by an independent third-party org

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 program

• ISO 9000 - a series of quality management standards in design, development, production, installation, and service

  • companies wanting to sell in the global market seek ISO 9000

• ISO 14000 - family of standards for environmental management

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

ISO 9000

1. customer focus - understand current and future customer needs

2. leadership - establish unity of purpose and direction of the organization

3. involvement of people - people are the essence of an organization

4. process approach - a desired result is achieved through a managed process

5. systems approach to management - managing interrelated processes

6. continual improvement - performance improvement is a permanent objective

7. factual approach to decision making - decisions are based on facts and data

8. mutually beneficial supplier relationship - interdependent benefits create value for an organization and its suppliers

ISO 31000 risk management standard

• enterprise risk management framework

• integrates risk management into the entire organization

• requires communication and consultation with all stakeholders

ISO 31000 principles

1. integrated - risk management is not a standalone activity

2. customized - no one size fits all

3. inclusive - involvement of stakeholders

4. structured and comprehensive - a consistent and systematic approach

5. dynamic - risks can emerge as context changes

6. best available info - based on historical and current info

7. human and cultural factors - people are the most unpredictable element of a risk plan

8. continual improvement - risk management is continually improved

ISO certified suppliers are preferred by procurement departments bc:

• they have to conform to an externally defined set of standards for quality and delivery of service

• they are easier for procurement to quality initially and periodically audit

• they are usually more open to sharing supply chain info

• they welcome building relationships with their customers

• they have formal processes in place for continuous improvement of their product, services, and processes

• an independent third-party agency does the certification

• firms have to be re-certified every three years

supplier development

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

• buyer’s activities to improve a supplier’s capabilities

• supplier development programs 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

a supplier development program must:

• be aimed at improving suppliers’ performance, not bullying them into charging less or simply auditing and rewarding them

• provide suppliers with what they need to be successful in the supply chain

2 essential functions to supply development programs

• providing info about products, expected sales growth. suppliers need to become extensions of their customers

• training suppliers to apply lean and six sigma/quality tools

  • asking suppliers to lower their prices without ensuring they know how to reduce their costs is not sustainable in the long term

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 supplier

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

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

• the business’s success can depend on the quality and performance of the compan'y’s suppliers

• it is always a good practice for a company to have innovative supplier recognition programs to recognize their achievements and reward them for their exceptional performance and services

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

1. motivate suppliers - to excel in quality, pricing, and delivery of commitments, if a company wants to retain and drive a supplier to excel, a motivation plan should be designed to reach them

2. improve supplier loyalty - supplier support is essential to maintain customer delivery commitments

3. encourage suppliers to adapt to the company’s culture - if the company treats its suppliers as a part of the family and engages the programs regularly, it can help bring suppliers closer to the corporate values, ethics, and principles of the company

4. helps to create entry barriers for competitors

5. encourages supplier participation in product innovation

supplier relationship management system

several technologies are available to support development when considering an SRM program - the reason for a system is to provide a more comprehensive and objective view of a supplier performance

• system will help identify and address supplier performance issues

• system can also be used to help make sourcing decisions

• it is essential to recognize that an SRM system can only be implemented in line with the associated business process changes

• SRM system is part of the process not the whole process itself

5 key characteristics in development and implementation of SRM

1. automation is meant to handle routine transactions

2. integration spans multiple departments, processes, and software applications

3. visibility of information and clear and concise process flows

4. collaboration through info sharing

5. optimization of processes and decision making

trends in supplier relationship management

1. alignment SRM with strategic sourcing - many companies are determining their negotiation strategies by tying them to their category management strategy and their supplier relationship goals

2. focus on cross-functional engagement - a best practice for strategic supplier relationships involves SRM teams at the company and the supplier, each led by a relationship manager, who forms a steering committee to lead the process

3. focus on innovation - companies that engage more with suppliers report higher ROI

4. investment in people and soft skills - treat suppliers courteously and respectfully. be candid and able to disagree without being disagreeable. hold both sides to the same standards