Ch. 7 - Supplier Relationship Management

Supplier Relationship Management (SRM)

A long-term strategy focused on "key" suppliers (high volume or critical parts) to move from simple buying to a strategic partnership

ex. car company working closely with a battery supplier to make sure they never run out of parts for electric cars

SRM involves

commitment over an extended period to work together

ex. 3-year deal with a fabric supplier instead of buying from a new one every month

Successful strategic partnerships: Building Trust + Vision

with this partners are more willing to share information

partners must look beyond the current year and have the same vision

Successful strategic partnerships: Developing Personal Relationships

making connections with people who communicate and make things happen

Successful strategic partnerships: Establishing Mutual Benefits and Needs

A "marriage-like" alliance where both sides meet their needs (win-win); if only one is happy, it won't last.

Successful strategic partnerships: Gaining Commitment from Top Management

partnerships tend to be successful when top executives are actively supporting each other

Successful strategic partnerships: Managing Change

Companies must be prepared to adjust/manage the changes that come with the formation of a new partnership

Successful strategic partnerships: Information Sharing and Lines of Communication

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

Successful strategic partnerships: Understanding and Influencing Capabilities

Key suppliers must have the right tech and capabilities to meet cost, quality, and delivery requirements on time (for current and future times)

Successful strategic partnerships: Continuous Improvement

Buyers and suppliers must be willing to continuously improve their capabilities in meeting customer requirements

Successful strategic partnerships: Measuring Performance

making a series of small improvements over time results in the eliminations of waste in a system

Plan, Do, Check, & Act (PDCA)

4 step process commonly utilized in continuous improvement

Plan

Identify improvements needed, make necessary changes to improve

Do

Implement on a small scale to see if change improve process before moving forward w/ full implementation

Check

Analyze results to see if change made positive impact

Act

if successful, implement on a wider scale and continuously asses results.

if not, root of cause was likely not identified or change wasn’t correct solution and need to start cycle again

You can’t improve what

you don’t measure

Total Cost of Ownership (TCO)

Every cent spent on a product, from buying it to using and maintaining it

Benefits for Buyers

• increased operating efficiencies

• Preferred access to the supplier’s best people

• Influence over supplier investments and technology

• Preferred access to supplier ideas

• Increased innovation from and with suppliers

• Sustainable competitive advantage

Benefits for Supplier

• Increased operating efficiencies

• 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 best and most reliable suppliers

Sourcing decisions are made on

facts and perception

frequent feed back avoids

surprises and maintains good realtionships

Supplier Evaluation: Performance is important to actively monitor of supplier

and provide visibility and feedback on performance at each stage of the evaluation process

“Squeezing” suppliers to generate a lower annual purchasing spend hurts

strategic relationships, but still happens often

Weighted-Criteria Evaluation System

A scorecard used by a team to rank suppliers as Preferred (best), Acceptable (needs plan), or Developmental (needs fix).

if acceptability is not achieved within a fixed period of time, look for alternative

Weighted-Criteria Evaluation System: Preferred

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

Weighted-Criteria Evaluation System: Acceptable

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

Weighted-Criteria Evaluation System: Developmental

require corrective actions from these suppliers on how they will achieve acceptable level.

Supplier Certification Programs

A source so reliable that their materials go straight to production, requiring minimal to no incoming inspection

Benefits of Supplier Certification Programs

reducing amount of time and labor needed for buyer to conduct incoming inspections

Supplier Certification programs are also used as

the phenomenon where small fluctuations in consumer demand are magnified into large variations in orders as they move upstream.

Criteria used for an internal Certification Program

supplier has no incoming product rejections

has no incoming late deliveries

no significant negative quality

ISO certification is highly sought after as it

represents achieving and maintaining a standard of excellence verified by an independent third party

2 types

9000 (for quality and service, to sell in global market)

14000 (for environment)

External Certification has to conform to

extnerally defined set of standards for quaity and delivery of service

External Cert is easier for procurement to

initially qualify and periodically audit

External Cert are usually more

open to sharing

External Cert firms have to be

recertified every three years

Supplier Development

buyer activities to improve a supplier’s capabilities

Supplier development is all about providing suppliers with

what they need to be successful.

Supplier development should be designed to

lower TC

Increase profit

increase quality

near perfect on-time delivery

Early Supplier Involvement (ESI)

collaborative strategy where strategic suppliers are integrated into a buyer’s internal product development and design processes from the start.

Value Engineering

activities help the buyer’s company to reduce cost, improve quality and reduce new product development time beginning with the initial design

Supplier Recognition Programs

meant to recognize suppliers who achieve high performance necessary to meet customer

Supplier Recognition Programs: 3 attributes

companies recognize and celebrate best suppliers achievements

award winner exemplify true partnerships

award winning suppliers serve as role models for others

Motivate Suppliers

SRP can make suppliers feel the need to excel in their quality, pricing, and delivery

Improve Supplier Loyalty

Supplier support is important to ensure that customer delivery commitments are maintained

SRP Encourage Suppliers to

adapt to company culture, bringing them closer to company’s corporate values, ethics, and principles + innovation

SRM Software: Tech Goals

systems that provide Automation (tasks), Visibility (clear info), and Collaboration (sharing data).

Strategic partnerships require are tactical in nature

False

Supplier Management Relationships focuses on the front part of the supply chain

False

Which is not one of the keys to building a strategic relationship?

Lower Prices

With trust, partners are less likely to work together or find compromise solutions to problems

False

Making a series of small improvements over time results in the elimination of waste in a system. This is considered what?

Continuous Improvement

Total Cost of Ownership is made up of all costs associated with the acquisition, use, and maintenance of a good or service.

True

It is important to actively monitor a supplier’s performance and provide visibility and feedback

True

ISO 9000 is a series of environmental standards in design, development, production, installation, and service.

False

Supplier Development is the technical and financial assistance given to existing and potential suppliers to improve quality and/or delivery performance. 

True

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

True