Supplier Management – Mystery or Mastery? An Introduction to Supplier Management Brought to you...

Supplier Management – Mystery or Mastery?An Introduction to Supplier Management

Brought to you by:

and

Isaac Young [email protected] Latimer [email protected] Jordan [email protected] Buck [email protected]

panel:

http://www.biosupplyalliance.com

Senior Director, Supply Chain Operations, BioMarin Pharmaceutical Inc.: Isaac has 31 years experience in Biotechnology with roles in Manufacturing, Regulatory Affairs, Information Systems, Ethics, Strategic Sourcing, and Supply Chain. Prior to joining BioMarin, Isaac was a Director of Strategy for the Purchasing & Supplier Management Group at Baxter Healthcare’s BioScience Division. He has worked for small biotech startups and for a supplier to the biotech industry. Isaac has an MBA from Babson College.

Associate Director of Supply Chain Management, MAP Pharmaceuticals, Inc.: Tim has over 10 years of Medical Device and Pharmaceutical Supply Chain Management experience with large and small businesses. Tim is a Chartered Engineer with the UK-based IET, and has a Masters degree in Industrial Automation. Tim has worked in manufacturing and R&D groups, as well as a Strategic Sourcing and Supply Chain positions in both corporate and business-unit roles.

Senior Director, Purchasing & Supply Management, Elan Pharmaceuticals Inc.: Jim has over 25 years experience in biopharmaceuticals having held positions at Genentech, Tularik, Amgen, and Gilead. A lifetime C.P.M., Jim has served on the Institute for Supply Management (ISM) Pharmaceutical Forum Board of Directors and was a founding member of the Biotechnology Purchasing Association. Jim has an MS in Procurement & Contract Management from St. Mary’s College of California and a BS in Biology from University of South Carolina.

Global Procurement and Supply Leader, Bio-Rad Laboratories: Mark brings over 21 years private & public sector experience in supply chain management & global sourcing, Lean manufacturing & operations planning, Six Sigma Quality process improvement, acquisition assimilation, organizational change management, complex outsourcing & global sourcing initiatives serving in roles of increasing leadership responsibility with global companies such as NCR, Solectron, Asyst Technologies, Apple Computer, & Celerity Group Inc. Mark holds a BSEE from the University of Illinois in Urbana-Champaign and was commissioned as a Marine Officer. He attended National University graduating with an MBA.

Mark Buck

Jim Latimer

Isaac Young

Tim Jordan

Agenda10:00 – 11:30

• Preamble• Supplier Segmentation• Internal Management Architecture• Strategies• Supplier Performance Monitoring• Total Cost of Ownership (TCO)• Summary• Q & A• Next up? Options for future presentations

We will pause periodically through the presentation to answer any questions or take your comments. Please type in your questions as you have them or “raise your hand” via the webinar tool when we pause.

If we don’t get through the entire presentation we will look to your feedback whether we conduct a “part 2” or move on to other topics.

Process


Emerging biopharmaceutical companies

A reactive business environment characterized as:• Conflicting priorities – getting to market now versus surviving

in the market later• Investment is in product development, not infrastructure• Purchasing “inherits” the supplier list• Supply risk is rarely considered• Value of any expertise is in crisis management• Multiple customers

Internal:• R&D• Quality• Finance• Regulatory Affairs• Manufacturing

External:• Patients• Doctors• Regulators• Reimbursement entities• Politicians / Society

The External StageIssues:• Rapidly changing environments - upstream & downstream• Increasing operational & security risk in supply chains• Expanding cost pressures / requirements for capital preservation• Accelerated innovation / accelerated obsolescence• Increasing emphasis on environmental impact & sustainability• More and more data, but not necessarily more and more knowledge

Imperatives:• Development of agility as the primary response to continued

uncertainty• Tolerance for ambiguity must become preparedness for ambiguity• Design for supply must become an integral part of product and

business development – availability / scalability / sustainability• Resilience

Purchasing versus Strategic Sourcing

Historical Purchasing

• Purchase order management• Primarily an Administrative role

– little to no involvement in corporate or supply chain strategy development

• Little to no involvement in sourcing process

• Limited expertise with materials / services procured

• Narrow focus on purchase price and delivery

• Low consideration of supply risk

• Predominantly reactive

Strategic Sourcing

• Supplier management• Develops and implements long

term supply strategies aligned with corporate strategy

• Involved in supplier selection and development early on

• Value add resource to internal customers

• Broad perspective on multiple cost elements

• Responsible for managing supply risk

• Driven to be proactive

Have An Articulated VisionDescribe what a world class supplier management function would look like at your company

examples:• There is a clear delineation of suppliers based on their strategic

importance. • Formal, characterized structures exist that define the relationship

with a supplier.• Supply base strategies exist and are based on robust industry

intelligence.• Supplier relations are structured around common goals• Opportunities for innovation transfer have been maximized and

monitored.• A quality system based supplier performance and development

program is in place.• The supplier base reflects a conscious implementation of

documented policies in support of diversity and sustainability.

Document What You DoWhat:• Policies, procedures, operational design, operational strategies, goals &

achievements, points to consider, supplier performance, total cost evaluations, category strategies, meeting minutes, etc.

Why:• Documents build equity in the form of a knowledgebase, not just short term

value adds• Documents provide the when and why of the lessons learned so the wheel

doesn’t get invented again• Documents articulate the value added and facilitates the communication of

that value to the rest of the organization• Makes it “official” – they’re required to stand up in a financial audit

How:• Start thin – it’s better to have a document that is weak than to have no

document at all• Consider leaving out of quality documentation system (no FDA review, no

deviations if not followed to the letter, etc.) • Do have revision control, revision history, reviewer signoff

Supplier Segmentation



Defining a Supplier Base

Formally stratify or categorize your Supplier base to focus resources where they are most valuable

– Manage total cost of acquisition

– Increase operating efficiencies

– Foster better communication

– Better leverage the knowledgebase of all parties

– Minimize risk

– Nurture opportunities for transfer of innovation

How to characterize the Suppliers

Considerations for classification– Category of spend

• Which commodities are involved

– Amount of spend– Direct vs. Indirect classification– Single source / sole source status– Criticality to operations– Strategic importance– Level of perceived risk – Bandwidth of your resources

• How many can actually be managed with the resources available

Example Worksheet

Criteria Description Weight Scale ValueStrategic Role 25% 7

High 10 >6 Level 1 XMedium 5 4 - 6 Level 2 X

Low 0 2 - 4 Level 3 X<2 Level 4 X

Quality Risk 25% 9High risk 10

Medium Risk 5Low 0

Level 1 XComplexity Risk 15% 6 Level 2 X

High 10 Level 3 XModerate 5 Level 4 X

Low 0

Supply Risk 25% 3High 10

Medium 5 Level 1 XLow 0 Level 2 x

Level 3 xSpend 10% 2 Level 4 x

>$1M 10$250K - $1M 5

< $250K 0

Management Override 1 Level 1 XNotes: Level 2 x

Level 3 xTotal Score 6.9 Level 4 x

Monitoring

Business Reviews

Strategy ReviewsSupplier Class Qrtrly Bi-annual Annually static

Supplier Class Qrtrly Bi-annual Annually

Internal Only

Supplier Class

Qtrly Scorecard

Annual Scorecard

No Scorecard

Total Score

Supplier Class

Qualificationannual audit

2 year audit

survey only

not required

assessment of the potential impact of a quality failure on a patient

level of sophistication / intricacy of a material or service including any I.P. protection or other esoteric factors

projected spend for material or service over next year or other appropriate time period

the extent to which the material or service factors into the overall success of corporate goals and objectives

assessment of the potential for interruption to the continuity of supply and its impact on operations

Supplier Classification

TRAIT / DOMAIN

Transactional Collaborative Alliance

Number of Suppliers Many Some Few

Communication No specific Systemic Systemic

Competitive Advantage No Med- High High

Continuous Improvement No Opportunity VIP

Difficulty Change/Exit Easy Difficult Very Difficult

Duration of Relationship Short term Mid/Long Term Long Term

Avoid/Resolve Issues Reactive Developing Proactive Proactive

Focus Lowest price Total Cost Best TCO / Risk Mitigation

Level of Integration None Medium High

Quality Incoming Inspection Certified Quality Joint Liability

Dedicated Resources Few, Low Skill Professional Dedicated

Service Level Low Developing High High

Forecasts P.O. Communicated Shared / Co-developed

Type of Interaction Tactical Cooperative / Collaborative Strategic Synergy

Types of Relationships

Consider how the relationship can be defined and what that means to available resources and the ROI on the effort involved.

Example:

Segmentation Profile Example

Tier 4 Tier 3 Tier 2 Tier 10

50

100

150

200

250

300

# o

f su

pp

lier

s

Office SupplyJanitorial ServicesComputer software

suppliers

• eTools• Price / Service

Agreements• RFP’s

Mechanisms

Examples

Commodity based, cost only focus

Characteristics

Lab SupplyFreight forwardersEmployee benefits

providers

• Annual reviews• Service

agreement• Internal surveys• Benchmarking• Risk mgmt plan

Commodity, higher impact on operating environment

Clean room garments

Testing Laboratories

• Scorecards• Category Teams• Bi-annual

Business Reviews

• Bi-annual audits• Risk profiles• BC / DR Plans• Inventory Plan• Change Control

Agreement

High importance, widely available, readily changed

Critical raw materials

Contract Manufacturers

• Scorecards• Technical

Category Teams• Qtrly Business

Reviews• Bi-annual audits• Financial

monitoring• Risk profiles• BC / DR Plans• Inventory Plan• Supply

Agreement

Critical impact, high cost of change

Collaboration ContinuumTransactional Engaged

Defining a Supplier Base• Goals:

– More engagement for suppliers that play a higher value role in your operations

– More expedient development of management strategies based on “where a supplier fits”

• Be cautious in the use of terms such as preferred supplier / key supplier / primary supplier as descriptors / labels without considering the ramifications of existing connotations

• Repeat periodically (defined) to re-class Suppliers as appropriate

• Pre-screen the vendor master– It is probably populated with every payee the company has

ever written a check to – not a good starting point• Available resources may influence tier volume – work with what

you have

Internal Management Architecture

Supplier SegmentationEnd of:

Next:

pause for questions



Selecting An Operating Model

Define how procurement activity and supplier interaction across the entire organization is structured both now and where it could / should be in the future:• Decentralized

– Procurement activity, including any policy or other governance, is disbursed across the organization without any centralized oversight (typically just financial controls)

• Centralized– All procurement activity / third party interaction occurs in a single group

• Hybrid– A significant, defined subset of procurement activity is centralized to a

single group with the balance being fully decentralized• Center-Led

– A single group is responsible for policy and oversight of any decentralized activity, setting standards, consolidating volumes, driving compliance, etc. with decentralized transactional activity across the organization

Supplier Management Mechanisms• Category Managers (sometimes referred to as

Commodity Managers)• Category Management Teams• Business Reviews• Category Strategies• Performance Monitoring / Supplier Scorecards• Executive Oversight• Corporate Strategy Development Process• Process / Technology

– Sourcing tools (i.e RFx, planning forecasting tools, iRFx, eProcurement engines, reverse auctions, etc.)

– Data sources (D&B, ISM, CAPS, CPI, Web, Suppliers, etc.)– Supplier portals

Category Management Teams• Cross-functional (and cross site if applicable) teams are

the standard, and for good reason:– Increases breadth of expertise applied to the category– Provides deeper visibility into current and future spend– Instills a greater awareness of the internal customer requirements– Improves acceptance / compliance of agreements– Fosters credibility internally and with Suppliers– Creates greater access for Suppliers to focused areas in the

company to improve collaboration and understanding of the customer’s requirements

– Facilitates greater opportunity for management of innovation transfer from the Supplier

– Promotes more awareness of the complexity and magnitude of other team members roles, aiding in the breakdown of organizational silos

Category Management Teams

• Output is the articulated category & supplier strategies & tactics• Team constituency should bring the technical knowledge base together

for current and future activity but also get upstream sufficiently to impact product and process design for supply risk reduction within that category – Design for Supply

• Stakeholders are not necessarily the Subject Matter Experts (SME’s) – SME’s may be found in some unlikely places

• Team constituency can be dynamic – an opportunity to broaden skill sets, increase the diversity of input, and adapt current category strategy

• Remain sensitive to conflicting priorities– Diversity in function to function focus and priorities

• Transparency – no hidden agendas• Supplier councils (steering committees) – when a Supplier has multiple

inroads into your organization

Agenda Example:• Company Updates • Commodity Review• Sales History Review• Business Forecast Updates • Supplier Performance (Scorecard Presentation)

– Quality Issues– Delivery Issues– Service Issues

• Pricing Issues• Project Updates• Opportunities

Business Reviews

And document the meeting minutes as well as any pre-meetings and / or debriefs

Periodic, formal, proactive engagement for review of the relationship to assure alignment and optimization.

Supplier Business Review Criteria Worksheet - Template

Supplier Name Commodity Products/Services

Annual Spend

> $1mil (10pts)

Annual Spend $250K-

$999K (8 pts)

Annual Spend $100K-

$249K (6 pts)

Sole Source

GMP Material (10 pts)

Multi Dept

Impact (5 pts)

Product Portfolio -

Volume and

Diversity (5 pts)

GMP Material/Service (5 pts)

Mgmt Overide (n pts)

Total Points Frequency

Tosoh Chem/Bio resin 8 10 5 5 5 20 53 Qtrly

Invitrogen Chem/Bio media 6 5 5 5 0 21 Annual

Sigma Aldrich Chem/Bio chemicals 8 3 5 5 10 31 Bi-annual

CDW IT hrdw/sftw IT hrdw/sftw 0

Dell IT hrdw/sftw IT hrdw/sftw 0

World Courier Logistics/Freight Logistics/Freight 0

Flow Comp Prod Disposables hoses,fittings 0

Fedex ERS Logistics/Freight Logistics/Freight 0

Doe & Ingalls Chem/Bio mfg chemicals 0

SBM Gen/Ops Sev cleaning services 0

Staples Gen/Ops Sev office supplies 0

Cole-Parmer Prod Disposables tubing/fittings 0

SAFC Chem/Bio media 0

Millipore BPC, Filters bags, filters 0

Pall Filters filters 0

Sartorius Filters filters, bags 0

VWR Lab Equip/Supplies lab equip/supplies 0

HyClone Prod Disposables BPC 0

Praxair Gen/Ops Sev specialty gases 0

GE Healthcare Resin resin 0

3M Filters filters 0

Prudential Gen/Ops Sev cleanroom gmnts 0

POINTS LEGEND:

Total Points Review Frequency

>50 Quarterly

30 - 50 Bi-Annual

< 30 Annual

2011 Supplier Business Review Schedule

Vendor Name Category Product (s) 2010 spend Frequency Date Buyer

Cole-Parmer Prod Disposables tubing/fittings $ 5,000 Bi-Annual IYCorp Express/Staples Office Supplies office supplies $ 10,000

Contract Renewal 14-Feb IY

CUNO/3M Filters filters $ 50,000Bi-Annual

9-Feb IY

Doe and Ingalls Chem/Bio chemicals $ 500,000 Qtrly 25-Jan IY

Flow Components Prod Disposables process hoses, connectors $ 250,000 Annual IY

GE Healthcare Resin resin/columns $ 1,000,000 Annual 11-Mar IY

HyClone BPC BPC $ 500,000 Bi-Annual 9-Feb IY

Millipore Filters, BPC Filters, BPC $ 250,000 Annual 4-Jan IY

Pall Filters filters $ 500,000 Bi-Annual 7-Feb IY

Praxair Gen/Ops Sev lab/specialty gases $ 300,000 Annual 10-Mar IY

Process HQ Prod Disposables Process hoses $ 100,000 Annual IY

Prudential Gen/Ops Sev Cleanroom garments $ 250,000 Annual 4-Mar IY

SAFC Chem/Bio media $ 2,000,000 Qtrly 15-Mar IY

Sartorius Filters filters $ 1,500,000 Qtrly 11-Feb IY

SBM Gen/Ops Sev Cleanroom cleaning/janit $ 300,000 Annual 17-Feb IY

VWR Lab Equip/Supplies lab supplies/chemicals $ 3,000,000 Qtrly 27-Jan IY

Business Reviews

Strategies

End of:

Next:

pause for questions

Internal Management Architecture



Supplier Tactics and Responses – Examples:• Going direct to end user – excluding Purchasing

– Include end user on Category Teams– Establish “facilitation” policies with guidelines

• Focus on upstream product development to get into hard-to-change regulatory filings– Get involved in Product Development process, involve Product

Development on Category Teams– Establish contractual agreements early on in relationship– Make prolific use of the term “or equivalent” in regulatory filings

• Getting “sticky”, getting into multiple areas / categories making it more difficult to switch supplier out– Manage supplier within one Category team but monitor / report

on all category involvements– Rolled up scorecard (all areas) is basis for business reviews

Response: Category Management

Best-in-class strategic sourcing organizations add value in numerous areas, not just in lowering prices:

• Policy development and monitoring• Guidance for non-procurement related interactions• Reduced time to market• Standardization of specifications• Working capital reduction

– Reduced inventories, vendor managed inventories– Extended payment terms

• Demand reduction / management– Promoting alternatives– Matching procurement to requirements

• Process optimization across the Supply Chain• Facilitating innovation transfer from suppliers• Risk reduction / change control / continuity of supply

Category Management Process

Categor

yDefinitio

n

Analysis

Strategy

Implementation

Review

There are multiple models that have been published supporting endless academic discussions. All work towards the same goals.

Example of a 5 step model:

Example of a 8 step model:

Category Management Process

Supplier Management

Supplier Development Program

Negotiations and Contracts

Supplier Evaluation

Supply Management

Supply Chain improvement

Risk Assessment

Risk Mitigation

Monitor, Measure and Communicate

Supplier Review Meeting

Supplier Improvement

Stakeholder Feedback

Category Assessment Category Strategy Category Sourcing

RFPSupplier SelectionEvaluate QuotationNegotiation plan / performAgreementImplementManage + Maintain

Spend Analysis

Material/Service Analysis

Utilization/Dissemination

Market / Industry Analysis

Strategy Development• Perform Strategic Analysis• Generate and Evaluate Options• Generate Source Plan• Obtain Strategy Approval

Strategy Realization• Implementation Plan• Communication plan• Sourcing plan

Supporting elements of the process• Demand analysis / spend analysis

– Current– Future– Use category / commodity codes to support future

analyses• Material / Service analysis

– Origin– Competing demand– Technology direction

• Market / industry knowledge – must think global– Fragmented / concentrated / side line or strategic focus– Regulatory concerns

• Benchmarking• Company culture

– Appetite for change– The curse of success - If it ain’t broke don’t fix it

• Supplier cultures

Strategic statements - examples• Consolidate number of suppliers to increase leverage & reduce costs• Increase number of suppliers to increase competition• Leverage Group Purchasing Organizations• Collaborate to reduce supply risk• Facilitate innovation transfer / Integrate suppliers into product

development process• Improve sustainability profile• Focus on other total cost elements• Manage demand• Standardize specifications• Outsource / in-source material or service• Invest in key suppliers• Become customer of choice for supplier• Expand the currency of the business

Gap Analysis Example

Cycle Time

Sustainability

Cost

Agility

Quality

Risk

Strategic Performance by Focus Area

Current Target

Set strategies over interim time periods (i.e. 1 year, 3 years, 5 years) and measure progress to close the gaps

Supplier Relationships

Secure the relationship and

leverage the value

Commoditize

Structure towards

Collaboration / Alliance

Remedy or replace

Complexity / Effort of relationship

Val

ue o

f re

lati

onsh

ip

Buyer Dominant Relationship

Independent Relationship

Interdependent

Relationship

Supplier Dominant Relationship

Supplier Strength

Buy

er S

tren

gth

Category strategies and supplier strategies drive each other in an iterative process

Culture

Internal culture / Supplier culture alignment– Focus horizon (short versus long term)– Similarity of values– Over focus on select, key staff – Concomitant sensitivity to all stakeholder

challenges – Ethics– Commitment to corporate reputations– Awareness / approach to risk– “Far Side” versus “Dilbert”

Relationship Sophistication• Alignment of goals - Shared vision

– Common definition of success and the path to get there

• Shared customer focus• Cooperation / collaboration• Trust

– performance to commitment– Predictability– Consistency

• Open & effective communication• Leverage competencies of both parties• Long term focus on mutual benefits• Dedication to innovation and continuous improvement• Acknowledgement of external pressures

Set Goals

Plan

Execute

MeasureImprove

React

Collaborate

Optimize Supplier Relationships

Deliver Operational Excellence across the

partnership / across the supply chain

Notes• Category strategies, if authored by appropriate cross-functional teams,

are more readily implemented and refined as the stakeholders have already been involved and continue to be the champions

• How much money are you going to spend in trying to save money?• Remember the zero-sum game concept

– If your gain is your supplier’s or customer’s loss, it may not be sustainable– Shifting costs to other areas does not represent value add for the Company

• Even if it can’t be measured, it still can be improved and reported• Beware going after measurable dollars by taking on immeasurable risk• Fundamental change across the supply chain is real legacy value

• Standardization of specifications• Economies of scale• Leveraging core competencies wherever they are• Lean processes• Cost of Quality• Resilience

Supplier Performance Monitoring

StrategiesEnd of:

Next:

pause for questions



Supplier Performance Measurements

A common tool for most environments with demonstrated results

Supplier Performance Measurements

Why

&

What

Measurements

Measurement Needs of CEOs/PresidentsThe CEOs/presidents of the 1,000 largest firms (500 manufacturing and 500 service) and 200 best small firms, when surveyed on their need for purchasing measures, said the most-needed measures primarily were non-financial in nature. The five most-needed measures, in order, were:

1.Quality of purchased items2.Key supplier problems that could affect supply3.Supplier delivery performance4.Internal customer satisfaction5.Purchase inventory dollars

Center for Advanced Purchasing Studies

Example 1:

What has worked and what hasn’t• Suppliers took notice and some even used the scorecards internally

for communication and improvements• It did (sometimes) drive focus to areas that needed it• Measurements were rather easy to generate, and generally, looked

pretty good• It played well with the wave of Six Sigma and Lean initiatives that

were sweeping business• Some Suppliers waved their high scores around like some victory

banner• Some Buyers did the same• The scorecard frequently did not reflect how either party looked at

the relationship – a good scorecard sometimes did not mean a good relationship

• A (too precious) few saw an opportunity for a deeper dialog and a vision of real improvement for the Supply Chain

Misuse of Supplier Metrics

• Worse than no metric? Not knowing what to do with the tool and its results before implementing it

• Does the metric matter (i.e. 3/1 window on delivery)?

• Ease of creation useable value

• Does the metric reflect what it implies (Quality)?

• Precision accuracy

• The metric, unto itself, cannot be the sole deciding factor in formulating action, as numbers do not yet tell all

• Be careful attempting to “formulate” a significant element of your responsibility – If your job could be automated….

• Einstein’s theorem: “Not everything that can be counted counts, and not everything that counts can be counted.”

The Role of Supplier Performance Metrics

• Education– Performance visibility / improvement guidance– Identify inefficiencies / continuous improvement

• A language for communication– Revelations– Set & communicate standards / goals

• Alignment• Objective evidence for contrasting against subjective

perspectives• Decision support – guidance, not mandate• Risk mitigation• Supplier selection – competitive evaluations

Example 2:

Example 2:Qtr 1 points possbl Qtr 2 points possbl Qtr 3 points possbl Qtr 4 points possbl

1 3 1 2 4 2 2 4 2 2 4 2 2

2 4 2 2 4 2 2 4 2 2 4 2 2

3 3 1 2 3 1 2 4 2 2 4 2 2

4 Supplier consistently communicates changes in advance 3 2 4 4 4 4 4 4 4 4 4 4

5 Supplier provides transparent insight into their strategy and business operations 4 2 2 4 2 2 4 2 2 4 2 2

6 Supplier provides stable, long term pricing 4 4 4 4 4 4 4 4 4 4 4 4

7 3 1 2 4 2 2 4 2 2 4 2 2

8 1 n.a. 0 1 n.a. 0 1 n.a. 0 1 n.a. 0

9 4 2 2 4 2 2 4 2 2 4 2 2

10 Supplier has not declared a force majeure or other supply interruption 4 2 2 4 2 2 4 2 2 4 2 2

Qtr 1 points possbl Qtr 2 points possbl Qtr 3 points possbl Qtr 4 points possbl

11 1 n.a. 0 3 1 2 4 2 2 4 2 2

12 1 n.a. 0 4 2 2 4 2 2 4 2 2

13 1n.a. 0

1n.a. 0

1n.a. 0

1n.a. 0


14 3 1 2 4 2 2 4 2 2 4 2 2

15 4 2 2 3 1 2 3 1 2 4 2 2

16 4 2 2 4 2 2 4 2 2 4 2 2


17 4 2 2 4 2 2 4 2 2 4 2 2

18 4 2 2 4 2 2 4 2 2 4 2 2

19 4 2 2 4 2 2 4 2 2 4 2 2

Performance % points possbl Performance % points possbl Performance % points possbl Performance % points possbl

82% 28 34 92% 35 38 97% 37 38 100% 38 38

Packing slips and/or other required shipping documentation is included

with shipments including P.O. #.

Shipments are packaged according to delivery requirements and local notification

or other delivery procedures are followed

Invoices are accurate and legible

Supplier accommodates information requests in a timely manner

Invoice Evaluation – 6 points

Statement

Purchase Order is identified on the invoice

Receiving Evaluation – 6 Points

Statement

Shipments arrive in a safe and satisfactory condition

Shipments are suitably packaged and labeled to facilitate inspection

and sampling

Supplier provides satisfactory responses to material issues consistent with the urgency of the issue

Statement

Required Quality Documentation is accurate and available in a timely manner

communications

RUSH orders are accommodated with efficiency and accuracy

Supplier is proactive in suggesting opportunities for value improvement and

works closely to realize that value

Supplier has formal and tested risk mitigation and contingency plans in place

Supplier has documented and effective initiatives on sustainable practices ("green" initiatives)

Purchasing Evaluation - 24 Points Possible

Statement

Sales representative keeps Purchasing informed and involved with regular

Supplier shares cost savings and / or insight into cost factors.

Inspection Evaluation – 8 points

Sometimes =1

Consistently = 2

Sometimes =1

Consistently = 2

Consistently = 2

Consistently = 2 Consistently = 2

Consistently = 2

Sometimes =1

Consistently = 2

Consistently = 2

Consistently = 2

Sometimes =2

Consistently = 2 Consistently = 2Consistently = 2 Consistently = 2

Consistently = 2

Consistently = 2 Consistently = 2Sometimes =1 Consistently = 2

Not Applicable


Sometimes =1 Consistently = 2Not Applicable Consistently = 2

Consistently = 2 Consistently = 2Not Applicable Consistently = 2

Consistently = 4 Consistently = 4 Consistently = 4

Consistently = 4Consistently = 4Consistently = 4Consistently = 4

Not Applicable Not Applicable Not Applicable Not Applicable

Not Applicable Not Applicable Not Applicable Not Applicable

Sometimes =1 Sometimes =1Consistently = 2 Consistently = 2





Sometimes =1 Consistently = 2 Consistently = 2 Consistently = 2


Qtr 1 points possbl

11 4 2 2

12 4 2 2

134

4 4

Qtr 1 points possbl

14 4 2 2

15 3 1 2

16 3 1 2

Qtr 1 points possbl

17 4 2 2

18 3 1 2

19 4 2 2

Performance % points possbl

88% 37 42

Packing slips and/or other required shipping documentation is included

with shipments including P.O. #.

Shipments are packaged according to delivery requirements and local notification

or other delivery procedures are followed

Inspection Evaluation – 8 points

Receiving Evaluation – 6 Points

Invoices are accurate and legible

Supplier accommodates information requests in a timely manner

Statement

Purchase Order is identified on the invoice

Invoice Evaluation – 6 points

Statement

Shipments arrive in a safe and satisfactory condition

Shipments are suitably packaged and labeled to facilitate inspection

and sampling

Supplier provides satisfactory responses to material issues consistent with the urgency of the issue

Statement

Required Quality Documentation is accurate and available in a timely manner Sometimes =1Consistently = 2

Consistently = 2Consistently = 2

Consistently = 4

Sometimes =1Sometimes =1

Consistently = 2Sometimes =1


Consistently = 2Sometimes =1


Consistently = 2

Example 2:

Risk of Rolled Up Scores

An aggregate score masks the issues – you’re looking for the low numbers, not the weighted mean

Example 3:BioU, Inc.

BioSupplier

Example 3: Comparing SuppliersSupplier X Supplier X

Example 4: RAW MATERIALS SUPPLIER SCORECARD 2011SUPPLIER NAME: BioSupplierPERIOD: JAN 1-MAR 31 Rating This Period ………………> 90

ANNUAL REVIEW StatusBusiness continuity plan is in place Yes Rating:Risk mitigation plan is in place for key materials Yes 95-100: ExcellentSupplier has a supplier management program in place Yes 85-94: SatisfactoryAudit status Compliant 85<: Needs ImprovementContract in place NoI. SERVICE

Metric

Always = 5 Most Often = 3 Sometimes = 1 Never = 0 Weight Total Points

Rush orders are accommodated with efficiency and accuracy 1 1 1Technical support is readily available 5 2 10Sales rep keeps Purchasing informed on regular basis 3 1 3Pricing is stable, with minimal adjustments 5 2 10Orders adhere to established lead times 3 1 3Market conditions are communicated to Purchasing 5 1 5Customer Service is responsive and knowledgeable 3 1 3Shipments arrive in a safe and satisfactory condition 5 1 5Packing Lists are included with shipments 5 1 5Changes are consistently communicated in advance 5 2 10Opportunities for value improvement are proactively suggested 5 2 10Purchase order is identified on the invoices 5 1 5Requests for information are accurate and timely 5 1 5

TOTAL SERVICE POINTS (85 points possible) 75II. DELIVERY

GMP Products OnlyNumber of Shipments On Time Delivery Rating

1 1 100%95-100% = 5 90-94% = 4 84-89% = 2 84% < = 0 Weight Total Points

TOTAL DELIVERY POINTS (15 points possible) 5 3 15III. QUALITY

GMP Products OnlyNumber of Shipments

Major (-500) Moderate (-300) Minor (-100) None (0) Quality Rating

TOTAL QUALITY POINTS 1 0 0COMMENTS:

Example 5 – Supply Risk Scorecard: SUPPLY RISK SCORECARD 2010

Supplier Name: BioSupplierManufacuring/Distribution Location: U.S. Based

Risk Description

Probability Rating Frequent = 10 Occasional = 5 Rare = 2 Inprobable = 0

Severity Rating Catastrophic = 10 Significant = 7 Marginal = 4 Negligable = 1

Total Probability and Severity

Points

Shortage in Supply Market 2 10 20

Natural Disasters 2 10 20

Man Made Disasters 2 10 20

Border Closings 2 7 14

Labor Actions 2 7 14

IT/Communication Failures 2 7 14

Legal Liabilities 2 7 14

Inability to accommodate volume increases 2 10 20

Political Risk (i.e. tariffs, regulations, FDA, etc.) 2 7 14

Transportation/Logistics 2 7 14

Financial Failures 2 7 14Other: Sole source, no supply agreement 10

TOTAL POINTS 188

Risk Assessment Rating<100 Acceptable101-179 Acceptable with Mitigation Plan>180 Unacceptable

Assessing and Engaging Suppliers• Focus on constructive, not adversarial information /

presentation– Scorecards should not be “scarecards”

• Use all internal resources – every opinion counts• Balance long term direction with short term performance• Use subjective areas as well (innovation, risk, culture, etc.)• Don’t confuse precision with accuracy• Don’t roll up the scores into one reportable number• Consider making category specific – not one template for all• If your scorecards are always running in the 95% - 100% range,

you’re measuring the wrong things• Use scorecard templates to identify new suppliers• If “metrics that matter” can help inspire and drive continuous

improvement, then why wouldn’t we have our suppliers measure us? Consider actionable metrics for both parties and use them.

Total Cost

Supplier Performance MonitoringEnd of:

Next:

pause for questions



Total Cost

• Purchase Price• Sales / Use Tax• Freight• Handling charges• Packing charges• Hazardous materials charges• Customs filings charges• Value Added Tax• Installation costs• Disposal costs• Impact on operations• Consulting / engineering / implementation

costs• Cost of supplies / consumables / spare parts• Cost of maintenance / service / calibration• Cost of licenses or other fees

• Cost of training• Salvage value• Cost of upgrades• Validation• Compliance qualification• Supplier qualification• Prototyping• Ongoing testing & compliance – Cost of

Quality• Distribution costs• Warranty cost• Cost of doing business with (new) Supplier• Cost of change if required in the future• Lead times / cost of required inventory• Exchange rates• Anticipated price inflation

All factors impacting the value of the acquisition must be considered:

Consult all stakeholders when assessing costs, not just the end user:

• Finance, EH&S, QA/QC, Validation, Legal, Supply Chain, Manufacturing, Regulatory Affairs, Compliance, Sales & Marketing, Business Development, etc. – all may have a stake in the choices you make

Economic & FinancialEconomic CollapseCurrency DevaluationLabor unrest, strikesLabor ShortageMajor Market FluctuationsQuick Decline in earningsHostile TakeoverNegative Cash FlowBankruptcyFinancial/Bank CollapseOther investment failings

Political & SocialGovernment Policy ChangeImprisonment of employees or family membersRegulatory ChangeCivil UnrestMartial Law

Brand/Org ReputationProduct & Service Liability, recall & failure Obsolescence CounterfeitingOrganization Ethics or Moral

Violations Improper Business Legal Issues Black Market Dealings

Weather & NatureHurricanes, Cyclones, Tornadoes & High WindsTyphoons / Torrential RainsEarthquakes & VolcanoesRising Water, Tidal Waves & TsunamisExtreme Heat/ColdGlobal Climate ChangeWildfireMudslides and Sink Holes

Environment & Human ConditionChemical, biological, radioactive & nuclear spillFire/ExplosionWater ContaminationPublic Utility FailureEmissions & waste Clean-upMold and AsbestosInfestations and pest controlWater Leaks/Levy breaksPhysical Structure Collapse

Criminal & TerroristProduct TamperingTerrorist Acts/ThreatsArson & BombingIndustrial EspionageSabotageKidnapping or ExtortionFraud & TheftProduct Use by TerroristWorkplace ViolenceCounterfeiting

InformationalLoss of IP, Confidentiality or Trade secrets (Tribal knowledge)Information Integrity or Quality of dataLoss of key customer, supplier, production data

TechnologicalCorporate Hardware FailureEnterprise SW failure or corruptionCapacity IssuesBandwidth or services issueLegacy or relevance issues

StrategyUnknown competitionProduct Irrelevance or misplacementPoor Marketing PlansSales Force Target MarketsPoor Acquisition StrategyFailure to innovateCustomer Perception FailureImproper Supply Chain Alignment

OperationalOut of StockPoor Forecast for marketSourcing FailurePricing MisalignmentProduction Shortage/FailurePoor Change ControlProduct/Project Mgt FailureTransportation/Log AccidentWorkforce StoppageDisruption/Delay to workRestricted Access to facility

Compliance and GovernanceNon-Compliance• Statutory• Regulatory• Legal• ContractClass Action/LawsuitsCorporate Governance IssuesExecutive Misdeed, bribes, security & code of conductOversights, errors, improper practice

Health & LaborEpidemic or PandemicLong-term Health issuesDefections and lost knowledgeUnattractive market or company for talentSkills shortageWorkplace harmony

Total Cost Models Must Account for Risk

• Subjective assessment is better than leaving it out because “it’s hard to measure”

• An absolute requirement when comparing sources / options

Examples:• Filter Housings

– Capital layout for one Supplier may be substantially less, but the housing will only fit their filters and they happen to be quite a bit more expensive or provide inferior performance

• Purification resins– Any marginal difference in the cost of the resin won’t compare to

any yield differences in performance• Major software purchase

– Implementation / validation / training / ongoing license and maintenance costs typically outweigh the purchase price

• Hazardous chemicals– Cost of disposal of any excess or the containers may outweigh

the savings from a particular Supplier’s offering• API

– Heparin

Summary

Summary comments

• If you can’t articulate your vision, it’s a hallucination

• Don’t let precision mask the absence of accuracy

• Pace the implementation of Supplier Management – the organization is ready for you to start but may not be ready to proceed at the same pace as you are

• Creation of a value add knowledge base that can be built upon is a great legacy, but it must be documented

• “Everything should be made as simple as possible, but not one bit simpler” (Einstein)

Engage:http://www.biosupplyalliance.com


Options for future webinars:

o Supply Chain Risk Assessment and Mitigationo World Class Purchasing – Articulating Your Visiono Others?

To provide feedback, or if interested in becoming a member of this group, please contact Bill Coakley at 650-358-3434, or [email protected]

“Because life depends on usTM, the Bio Supply Management Alliance supports continuous learning and improvement of bio supply management professionals and the enhancement of the efficacy of the supply chain of the industry through collaboration.”

Our Mission• To build effective and efficient supply chain STRATEGY for the biotech,

biopharma, pharma and biomedical device industries by developing, advancing, and disseminating best practices, knowledge, and research.

• To encourage and promote supply chain INNOVATION within the biotech, biopharma, pharma and biomedical device industries for the highest quality and clinical outcomes in patient care and welfare.

• To create a supply chain COMMUNITY of thought and practice leaders from the business, professional association and academic sectors for information exchange, shared services, and collaboration.

Supplier Management – Mystery or Mastery? An Introduction to Supplier Management Brought to you...

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