Joint Service Agreements Ron Basu web: The 2005 JCF Seminar Contact- Collaboration- Co-ordination...

Joint Service Agreements

Ron Basuweb: www.rbcon.co.uk

The 2005 JCF SeminarContact- Collaboration- Co-ordination

London, 13 July 2005

EL Performance Excellence Ltd

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http://www.rbcon.co.uk/

Agenda

• Industry drivers for outsourcing and partnering• Advantages and disadvantages of standard contract

supply agreements• Joint Service Agreements• JSA case example• JSA for partnerships

- incentives and penalties- tools and processes

• Supplier-Partnering Hierarchy


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SUPPLIER CUSTOM ER

Receiving M anufacture Packing Distribution

Purchasing Scheduling

MPS Demand Management

Sourcing and Supply

ERP

e- Supply Chain

Physical Flow

Information Flow

Shift Of Performance Criteria

ENTERPRISE INTEGRATED SUPPLY CHAIN

Autonomous and adversarial

Opaque to the outside world

Internally focused site centric

Strategically long-term

Hierarchical and information hoarding

Technologically constrained

Enterprise excellence

Networked and collaborative

Transparent to customers and partners

Externally focused market centric

Strategically agile

Knowledge creating and sharing

Web enabled

Network Excellence

Shift towards collaborative e-Business culture


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Main benefits of IT outsourcing

Source: PMP Research 2004

Don’t know

Access to a wide range of IT skills

Measurable cost savings

Improvement in service level

Able to use IT more strategically

Access to more innovative capabilities

More rapid response to business change

Other

56

52

45

44

38

35

5

8

Industry drivers for outsourcing

• Increasing costs of goods• Global manufacturing capability at lower cost• E-supply chain and collaborative economy• Relaxed regulatory control – trade, branding, GMP• Faster product transfer from R&D to manufacturing• Transfer pricing and tax benefits• Growth in generic products’ market share• Release of key resources to focus in key initiatives

We want to optimise cost,capacity,flexibility and cycle time


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Risks and concerns for outsourcing• Danger of giving away ‘family silver’ (manufacturing

advantage)• Issues of project management, communications and

quality• Possible delay in regulatory approval• Political issues of ‘globalisation/exploitation’• Loss of label (e.g. ‘made in UK’)

• We don’t want to throw the baby out with the bathwater


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Outsourcing strategy criteria• Core competence should be kept in house• No compromise with quality, on-time delivery and

price• Communication issues (e.g. time zones, languages)

must be resolved• IT systems should be integrated (web enabled)• Service agreements must be in place• Rigorous project management approach

• Regular review and follow-up

The rule is to be world class


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A global sourcing model


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PATENT LIFE

VOLUME

Retain competitive advantage of new products

Divest/Third Party

ContractPartnership

OwnManufacture

Own GlobalNetwork

H

HL

L

A Product Life-cycle model


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Align sourcing strategy with product life cycle

Own Global Network

Volume

TimeOwnManufacture

ContractPartnership

Divest/Third Party

Gro

wth

Lau

nch

Ma

turit

y

De

clin

e

Partnership by service level agreements


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Supplier

Product Market

Market

Market Product

Product

Supplier

Supplier

CoManCO

PharmaCOPharmaCO

PharmaCO

CoManCO

Joint SLA

In-house

Standard SLA

P EL Performance Excellence Ltd

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Standard Service Agreement:Key Features

• Quality- specification control- regulatory approval- GMP and validation

• Supply Chain- forecasting, ordering and delivery- service levels

• Total Cost of Acquisition- cost plus x%- fixed delivered price

• General- payment terms- confidentiality- termination


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Standard Service Agreement:Customer Perspective

• Advantages- well defined terms and conditions- low risk of deviation in quality and cost

standards

• Disadvantages- little opportunity for continuous

improvement- less flexibility and responsiveness- limited knowledge of supplier strengths

and weaknesses


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Strategies of Collaborative Partnership

• Partnership by Joint Service Agreements

• Strategy of learning organisation• Dual project management in technology

transfer• Interfacing ICT systems• Participation in Sales and Operations

Planning• Participation in ERP/TQM/Six Sigma


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Joint Service Agreement:Key Features

• Quality- similar to Standard Service Agreement- joint review and audit

• Supply Chain- sharing of forecasting and planning- combined continuous improvement initiatives- collaborative KPIs and incentives

• Total Cost of Acquisition- cost incentives

• General- similar to Standard Service Agreement- partnership and flexibility


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Joint Service Agreement:Customer Perspective

• Advantages- higher and more adaptive customer service- higher quality assurance- lower total cost of acquisition- competitive advantage of flexibility and

responsiveness- sustainable partnership with fewer

suppliers• Disadvantages

- more time and resources to manage?- possible know-how risk?

Case Example: ZYBANValue Chain Strategy


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PrimaryManufacture

SecondaryManufacture

SecondaryPackaging Markets

Catalytica

Technochem

Latin America

Zebulon

Zebulon

Boronia

Poznan

Aranda

Mexico

USA

Canada

Asia Pacific

CEE

EU

Africa, ME

Case Example: ZYBAN

• PRIMARY MANUFACTURE

- Drug substance: Bupropion Hydrochloride- Two stage process and a final crystallisation- Bupropion is manufactured under licence by Catalytica Inc. USA

• STRATEGY

- Retain Catalytica Inc.- Include Technochemie GMBH as an alternative source


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Case Example: ZYBAN


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• Joint Service Agreement process with Catalytica Inc.

- FMEA and risk assessment carried out- Capacity analysis showed no bottleneck- Regulatory requirements accomplished

including FDA approval- Regular review as part of Global Demand

& operations Planning process- Designated supplier in Global Supply

Chain project (Manugistics)- Joint Service Agreement formalised


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JSA for partnerships:incentives and penalties (1)

• Key Performance Indicators- customer compensates for better actual

than target- supplier compensates for worse actual

than target• Vendor Managed Inventory

- customer gives access to forecast and MPS

- supplier maintains the agreed inventory level


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JSA for partnerships: incentives and penalties (2)

• Primary Manufacture- customer owns the IP of API- higher added value of API to suppliers

• Technology Transfer- dual project management- sharing of resources, technical and

regulatory expertise• Interfacing ICT systems

- Interfacing SCM/CRM and remote access to ERP

-Extranet link to KM and e-Procurement


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JSA for partnerships:Financial Incentives

0 25 50 75 100 125 150

Pay curve

Earned Value curve

Guaranteed minimum

Performance

Earnings

Customer gain

Supplier gain

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JSA for partnerships:

Tools and Processes

• ERP/SCM/CRM

• ECM: Enterprise Contract Management

• Balanced Scorecard

• Sales & Operations Planning

• Six Sigma programme

ECM: Enterprise Contract Management

• ‘80% of all business transactions are based on contracts’ (Accenture)

• ECM stores contracts in a repository to track actual revenue against contracted revenue

• Integrate ERP and ECM- gap in ERP- single set of data- visibility and reliability

• I-many system can handle 100,000 + contracts


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The Supplier-Partnering Hierarchy

Understand how your suppliers work

Turn supplier rivalry into opportunity

Supervise your suppliers

Develop suppliers’ technical capabilities

Share information intensively but selectively

Conduct joint improvement activities

Source: Liker & Choi, HBR, Dec 04


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EXCHANGE IDEAS IN JSAs

• If you have a cent and I have a cent and we exchange cents, you will still have one cent and I still have one cent.

• But if you have an idea and I have an idea and we exchange ideas, you now have two ideas and I now have two ideas.

THANK YOU

Ron Basuemail: [email protected]


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Joint Service Agreements Ron Basu web: The 2005 JCF Seminar Contact- Collaboration- Co-ordination...

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