Optimizing Supplier Alignment

32

Overview and Need

Program Summary and Objectives

Suppliers and their relationship with distributors determine the capability and even the survival of the distributors’ supply chain. Determining the right suppliers and partners is the key to both good customer service and business sustainability.

Distributors must do business with increasing numbers of suppliers due to widening supply chain networks, expanding product portfolios, and the creation of additional value added services. Developing the right strategies to relate to suppliers will enable distributors to remain competitive and profitable. Supplier Stratification is the process of stratifying suppliers based on profitability, distributor services performance and loyalty. Other factors such as risk, relationship and growth potential can also be used. Supplier Stratification helps management and the sourcing team to comprehend how buying and sourcing activity impacts their firm’s profitability.

The objective of Supplier Stratification is to understand the criticality of the supply base and to allocate key resources accordingly. The Stratification process enables companies to develop strong supplier relationships and improve profitability in the long term.

The phases of this program are illustrated in Figure 1 on the next page.

Linking customer stratification to our supplier and inventory systems empowers our team to quickly distill the variables affecting risk and reward so they can make better and more profitable business decisions

--Frank Flynn, President, Sager Electronics Figure 1: Project Phase

Phase 1 - Business Process Mapping:

The research team will conduct a one-day workshop to understand your supply chain and related business processes from a Supplier Stratification decision-making viewpoint. This phase also includes a process assessment of your current Supplier Stratification practice(s). The workshop will follow the Supplier Stratification framework developed by Thomas & Joan Read Center for Distribution Research & Education, demonstrated by Figure 2 below:

Figure 2: Texas A&M Supplier Stratification

Stratification ModelKPIKPI Sub CategoryKPI Category

Supply Chain Performance

Competency

On-time Delivery

Delivery Completeness

Average Lead Time

Lead Time Variability

C & D Item %

Product Information Content Quality

Product Quality (Warranty Returns)

Brand Strength

Profitability

Net Margin % (After rebates)

Net Profit £

Inventory Turns

GMROI

Marketing Co-Op Funding

Strategic Alignment

Involvement

Technical Training Support

Special Pricing Support

Joint Sales Visits

Supports Non-Stocked Products

Product Mix

Channel intensity

Net Spend

Growth

Net Spend Growth Rate

New Customer Acquisition Rate

Net Profit Growth Rate

New Product Introductions

Stra

tegi

c Al

ignm

ent


A DA CA BA AA

B DB CB BB AB

C DC CC BC AC

D DD CD BD AD

D C B A

CUSTOMARY

TRANSACTIONAL EMERGING

STRATEGIC

Stra

tegi

c Al

ignm

ent


SUPPLIER STRATIFICATION MODEL

Strong brand Exclusivity Service intensive Low market control

Strong brand ExclusivityHigh market control High profitability

Weak brand Saturation Service intensive Low market control

Weak brand Product shortages High market control Short term

Margin or Profitability

Distributor Services

Sup

plie

r Lo

yalt

y

Sup

plie

r P

erfo

rman

ce

SUPPLIER CONTROLLED

STRATEGIC PARTNERS

DISTRIBUTOR CONTROLLED

OUT OF CONTROL

VENDOR CONTROLLED

STRATEGIC PARTNERS

OUT OF CONTROL

Strategic PartnersBrand EquityExclusivityHigh ProfitabilityLong-Term Opportunity

Low ProfitabilityService IntensiveCompetitively IntenseCustomer Controlled

Their Business/ Your MoneyWeak BrandSaturation DistributionService Intensive


Low ProfitabilityHigh Spend VolumeCollaborative RelationHard to Do Business With

High ProfitabilityHigh Spend VolumeCollaborative RelationEasy to Do Business With

Low ProfitabilityLow Spend VolumeLimited RelationshipHard to do Business With

High Profitability Low Spend VolumeLimited RelationshipEasy to Do Business With

Supplier Profitability

Ease of Doing business

Sup

plie

r Lo

yalt

y

Gro

wth

Pot

enti

al

CUSTOMARY STRATEGIC

EMERGINGTRANSACTIONAL

Model 1Model 2





Profitability

Competency

Invo

lvem

ent

Gro

wth

CUSTOMARY STRATEGIC


Model 2 Modified

$

Ranking Matrix

©Thomas and Joan Read Center 2019. All Rights Reserved.

Stratification ModelKPIKPI Sub CategoryKPI Category


Competency

On-time Delivery

Delivery Completeness

Average Lead Time

Lead Time Variability

C & D Item %

Product Information Content Quality

Product Quality (Warranty Returns)

Brand Strength

Profitability

Net Margin % (After rebates)

Net Profit £

Inventory Turns

GMROI

Marketing Co-Op Funding

Strategic Alignment

Involvement

Technical Training Support

Special Pricing Support

Joint Sales Visits

Supports Non-Stocked Products

Product Mix

Channel intensity

Net Spend

Growth

Net Spend Growth Rate

New Customer Acquisition Rate

Net Profit Growth Rate

New Product Introductions

Stra

tegi

c Al

ignm

ent


A DA CA BA AA

B DB CB BB AB

C DC CC BC AC

D DD CD BD AD

D C B A

CUSTOMARY

TRANSACTIONAL EMERGING

STRATEGIC

Stra

tegi

c Al

ignm

ent


SUPPLIER STRATIFICATION MODEL

Strong brand Exclusivity Service intensive Low market control

Strong brand ExclusivityHigh market control High profitability

Weak brand Saturation Service intensive Low market control

Weak brand Product shortages High market control Short term

Margin or Profitability

Distributor Services

Sup

plie

r Lo

yalt

y

Sup

plie

r P

erfo

rman

ce

SUPPLIER CONTROLLED

STRATEGIC PARTNERS


OUT OF CONTROL

VENDOR CONTROLLED

STRATEGIC PARTNERS

OUT OF CONTROL

Strategic PartnersBrand EquityExclusivityHigh ProfitabilityLong-Term Opportunity

Low ProfitabilityService IntensiveCompetitively IntenseCustomer Controlled

Their Business/ Your MoneyWeak BrandSaturation DistributionService Intensive






Supplier Profitability

Ease of Doing business

Sup

plie

r Lo

yalt

y

Gro

wth

Pot

enti

al

CUSTOMARY STRATEGIC


Model 1Model 2





Profitability

Competency

Invo

lvem

ent

Gro

wth

CUSTOMARY STRATEGIC


Model 2 Modified

$

Ranking Matrix

Professional Development Professional Development

54

This session will enable your company to identify the correct strategies for developing supplier relationships and improving long-term profitability. The presentation of stratification results in a workshop setting provides attendees with the knowledge and skills necessary to develop objectives, a strategic growth plan, and the initiatives to drive the strategies and achieve the objectives.

Phase 2 – Pilot Stratification Analytics

In this phase, Texas A&M will perform Supplier Stratification for a chosen pilot location using your firms’ data as mentioned in the below graphic. The company will have to extract and provide the data in the required format to be specified by Texas A&M. Our research team will help you identify the data they are looking for and the optimal format in which to deliver it.

Phase 3 – Experiential Learning

In this phase, we will teach your analysts or representative members on how to perform Supplier Stratification and how the resulting data will be used in pricing analytics. As a part of this phase, a detailed step-by-step procedure will be provided and hands-on activities will be carried out in a webinar/in-person setting. This will enable the participants to understand and learn the analytics process, and will help your company to replicate the analysis in other areas of business decision-making in the future

Phase 4 – Educational Workshop

The results of the data analysis phase will be presented in a 1-day educational workshop to facilitate change management and to develop supplier strategies. Texas A&M will demonstrate the variables that factor into Supplier Stratification methodology, and this session will educate the executive team, sales force, and the IT team on Supplier Stratification and its potential applications.

Figure 3: Supplier Analytics

Figure 4: Texas A&M Channel Alignment Frameworks©Thomas and Joan Read Center 2020. All Rights Reserved.


76

Who Should Attend? Deliverables

• Sales and Branch Managers

• Purchasing Personnel

• Business Analysts and IT Managers

• Executives and Strategic Managers

• Slides as a course booklet

• Workbook for exercises and activity

• Supplier Stratification Book

• Certificate

Benefits

• A structured analytical approach to help companies stratify the suppliers and devise strategies accordingly.

• A neutral third party perspective by Texas A&M with a supply chain focus leading to global (overall company) instead of local optimization.

Aligning Working Capital to Customer Experience to Maximize Your Bottom Line

F. Barry Lawrence · Senthil Gunasekaran · Pradip Krishnadevarajan

InvEntorY AnALYtICsUnLoCk PoWEr ofthe

Profitability

Growth

Asset Efficiency

Cash Flow

Striking the Right Balance for MarginAdvantage

OptimizatiOnpricing

Pradip Krishnadevarajan · Senthil Gunasekaran · F. Barry Lawrence · Brijesh Rao

Striking the Right Balance for Margin Advantage

pricing OptimizatiOn

“ This Pricing Optimization study brings a unique blend of methodical analytics and real-world experience to pricing optimization. The process is engaging and very well organized. This work is a true partnership between industry and research.”

— Kevin Kampe, President, Womack Machine Supply

“ This Pricing Optimization study has been an invaluable tool for highlighting opportunities to improve margins. Implementing the principles in a pilot location raised gross margins by over 3% in less than a year. It has been an eye-opening experience for those salespeople using the cost-plus method for determining sales price.”

— Kevin Martin, Vice President of Operations, Pipeline Packaging

Forward-thinking wholesaler-distributors who strive for above-average returns in the “New Normal” by leveraging pricing optimization best practices that are rooted in sound analytics must read Pricing Optimization: Striking the Right Balance for Margin Advantage!

The time has come for distributors to address their concerns about shrinking margins by upping their game on pricing decisions. If distributors keep doing more with less, they’ll soon find themselves doing everything with nothing! The issue of margin erosion will never end if distributors do not get creative — first with their pricing methods, and sec-ond with their value proposition. Issues involving pricing methods are more critical to profitability and so should be tackled right away.

For many distributors, pricing decisions are completely left to individual salespeople to do in their own way. Allowing this kind of flexibility is a distributor’s weakness. Pricing is already quite complex, and inconsistency will only increase complexity and will lead to chaos. Here lies the crux of the problem.

The solution to this dilemma lies in “complexity manage-ment”— providing structure with fewer variables, and “con-sistency”— doing things the same way every time. This comprehensive study will help you achieve the right pricing solution for your business!

Pradip Krishnadevarajan is the co-founder and research lead at the Global Supply Chain Labora-tory at Texas A&M University. As an industry adviser and business manager, Krishnadevarajan assists distributors across diverse channels with

best practices, business decisions, and education. He is an author of five books on quantifying the value of distribution, profitability, and best practices.

Senthil Gunasekaran leads research on the whole-sale distribution industry at the Global Supply Chain Laboratory at Texas A&M University. Expe-rienced across multiple lines of trade, Gunase-karan designs and directs industry projects and

consortia focused on identifying and implementing best prac-tices for distributors. He is an author of four books on distrib-utor profitability and growth and an APICS Certified Supply Chain Professional.

F. Barry Lawrence is director of the Industrial Dis-tribution Program and the Global Supply Chain Laboratory at Texas A&M University. Lawrence is a Fellow of the NAW Institute for Distribution Excellence and an author of seven books on dis-

tributor competitiveness. He serves as an adviser to the distri-bution channel on supply chain management and is a frequent speaker for distribution associations, buying groups, and companies on a wide range of supply chain topics.

Brijesh Rao is a leading operations research pro-fessional with 10 years of experience in helping distributors improve processes, optimize opera-tions, and increase margins. From 2004 to 2009, he was a technical lead for several industry projects at

the Global Supply Chain Laboratory at Texas A&M University. Rao played a key development role in the pricing optimiza-tion research consortium.www.nawpubs.org

Krish

nad

evaraja

n · G

un

aseka

ran

· Law

rence · R

aopricing Optim

izatiOn: Strikin

g the R

ight B

ala

nce for M

argin

Ad

van

tage

Number 1 Industrial Distribution program in the world.

24 InstructorsAverage teaching experience of at least 16 years

Learn secrets to implement key best practices in

3-6 Months10+ unique topics

that will boost your

firm’s bottom line.

Proven methods driven by

cutting edge research for over

60 years

Over 1,000 business professionals attend our workshops every year

Program duration is

1-5 Days

Help more than 265 companies each year to create competitive advantage

WHY WORK WITH US?

For more information, please contact Patrick Dolan at [email protected].

Current Publications

Aligning Working Capital to Customer Experience to Maximize Your Bottom Line

F. Barry Lawrence · Senthil Gunasekaran · Pradip Krishnadevarajan

InvEntorY AnALYtICsUnLoCk PoWEr ofthe

Profitability

Growth

Asset Efficiency

Cash Flow

Striking the Right Balance for MarginAdvantage

OptimizatiOnpricing

Pradip Krishnadevarajan · Senthil Gunasekaran · F. Barry Lawrence · Brijesh Rao

Striking the Right Balance for Margin Advantage

pricing OptimizatiOn

“ This Pricing Optimization study brings a unique blend of methodical analytics and real-world experience to pricing optimization. The process is engaging and very well organized. This work is a true partnership between industry and research.”

— Kevin Kampe, President, Womack Machine Supply

“ This Pricing Optimization study has been an invaluable tool for highlighting opportunities to improve margins. Implementing the principles in a pilot location raised gross margins by over 3% in less than a year. It has been an eye-opening experience for those salespeople using the cost-plus method for determining sales price.”

— Kevin Martin, Vice President of Operations, Pipeline Packaging

Forward-thinking wholesaler-distributors who strive for above-average returns in the “New Normal” by leveraging pricing optimization best practices that are rooted in sound analytics must read Pricing Optimization: Striking the Right Balance for Margin Advantage!

The time has come for distributors to address their concerns about shrinking margins by upping their game on pricing decisions. If distributors keep doing more with less, they’ll soon find themselves doing everything with nothing! The issue of margin erosion will never end if distributors do not get creative — first with their pricing methods, and sec-ond with their value proposition. Issues involving pricing methods are more critical to profitability and so should be tackled right away.

For many distributors, pricing decisions are completely left to individual salespeople to do in their own way. Allowing this kind of flexibility is a distributor’s weakness. Pricing is already quite complex, and inconsistency will only increase complexity and will lead to chaos. Here lies the crux of the problem.

The solution to this dilemma lies in “complexity manage-ment”— providing structure with fewer variables, and “con-sistency”— doing things the same way every time. This comprehensive study will help you achieve the right pricing solution for your business!

Pradip Krishnadevarajan is the co-founder and research lead at the Global Supply Chain Labora-tory at Texas A&M University. As an industry adviser and business manager, Krishnadevarajan assists distributors across diverse channels with

best practices, business decisions, and education. He is an author of five books on quantifying the value of distribution, profitability, and best practices.

Senthil Gunasekaran leads research on the whole-sale distribution industry at the Global Supply Chain Laboratory at Texas A&M University. Expe-rienced across multiple lines of trade, Gunase-karan designs and directs industry projects and

consortia focused on identifying and implementing best prac-tices for distributors. He is an author of four books on distrib-utor profitability and growth and an APICS Certified Supply Chain Professional.

F. Barry Lawrence is director of the Industrial Dis-tribution Program and the Global Supply Chain Laboratory at Texas A&M University. Lawrence is a Fellow of the NAW Institute for Distribution Excellence and an author of seven books on dis-

tributor competitiveness. He serves as an adviser to the distri-bution channel on supply chain management and is a frequent speaker for distribution associations, buying groups, and companies on a wide range of supply chain topics.

Brijesh Rao is a leading operations research pro-fessional with 10 years of experience in helping distributors improve processes, optimize opera-tions, and increase margins. From 2004 to 2009, he was a technical lead for several industry projects at

the Global Supply Chain Laboratory at Texas A&M University. Rao played a key development role in the pricing optimiza-tion research consortium.www.nawpubs.org

Krish

nad

evaraja

n · G

un

aseka

ran

· Law

rence · R

aopricing Optim

izatiOn: Strikin

g the R

ight B

ala

nce for M

argin

Ad

van

tage

Number 1 Industrial Distribution program in the world.

24 InstructorsAverage teaching experience of at least 16 years

Learn secrets to implement key best practices in

3-6 Months10+ unique topics

that will boost your

firm’s bottom line.

Proven methods driven by

cutting edge research for over

60 years

Over 1,000 business professionals attend our workshops every year

Program duration is

1-5 Days

Help more than 265 companies each year to create competitive advantage

WHY WORK WITH US?

For more information, please contact Patrick Dolan at [email protected].

Current PublicationsAll publications are published through Texas A&M University’s partnership

with the NAW Institute for Distribution Excellence. The following publications can be purchased here:

https://www.naw.org/naw-institute-for-distribution-excellence/#CRDBP

Workshop Agenda

Activities:

• Supplier Stratification Framework

• Supplier Alignment

• Supplier Relations

• Supplier Strategies


Dr. F. Barry Lawrence, PhD Leonard and Valerie Bruce Chair in Industrial DistributionProgram Coordinator of Industrial Distribution Director of Thomas and Joan Read Center for Distribution Research and Education

Industrial Distribution Program | Texas A&M University 3367 TAMU, College Station, Texas 77843-3367 P: 979.845.1463 | M: 979.571.5513 [email protected]

Dr. Esther Rodriguez Silva, PhD Talent Incubator Program, DirectorGlobal Supply Chain Laboratory, DirectorTEES Assistant Research Professor

3367 TAMU, Texas A&M University 118F Sbisa, College Station, TX 77843-3367Direct: 979 845 3146 [email protected]

INDUSTRIAL DISTRIBUTION PROGRAM204 Fermier Hall, 3367 TAMU

College Station, TX 77843-3367 PH 979-845-4984 FX 979-845-4980

WEB id.tamu.edu

G A I N C O M P E T I T I V E A DVA N TA G E T H R O U G H E D U C AT I O N

HTTPS://READCENTER.TAMU.EDU

[email protected]

TO VIEW OUR WEBSITE, VISIT:

FOR MORE INFORMATION ABOUT CONSORTIA AND CONTINUED EDUCATION PROGRAMS, PLEASE CONTACT:

Patrick Dolan Program Assistant, Thomas and Joan Read Center for Distribution Research and Education P: 979.458.2862 [email protected]

Texas A&M University

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Optimizing Supplier Alignment

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