The Hidden Asset - Effective SRM

The Hidden Advantage - SRM

©ALL RIGHTS RESERVED - Confidential

Spend Matters UK/Europe Real World Sourcing

The Hidden Advantage – SRM

Guy Allen May 22nd 2013




Part 1 – Introduction

The Real World Sourcing Series is a series of 6 sessions covering hot topics for procurement professionals.

The Real World Sourcing Series is promoted and supported by BravoSolution, and developed by Peter Smith (Spend Matters) and Guy Allen (Real World Sourcing Limited).

Guy Allen started his procurement career with Ford Motor Company, moving through IBM, SmithKline Beecham and GSK before becoming CPO for Abbey National and VP Global Sourcing at Fujitsu before joining 4C as a Managing Partner. Guy has since left 4C and started his own consultancy, Real World Sourcing Limited.




Agenda 1. What is Supplier Management?

2. Why Is It Important?

3. In Depth Look at a Real SRM Programme

4. Case Studies




Contract Management (CM) is maximising the returns achieved from individual contracts you have with Suppliers.

Supplier Management is everything you do in your supply market, not related to a specific contract.

Basic CM must be in place for an SM to be effective.




Planning &

ownership

Market

management

SRM

Supplier

development

Contract

development

Payment Risk

Delivery

Administration

Resources

GOOD

PRACTICE

Relationships

Not Contract

Management

Good Supplier Management Will Cover All of These Aspects




Putting into Context

Supplier Contract

Understand internal

requirements &

stakeholders

Stage 1

Define scope and category

structure

Stage 2

Understand market and

suppliers

Stage 3

Develop category

strategy and plan

Stage 4

Select supplier(s)

Stage 5

Implement contracts

Stage 6

Contract and supplier

management

Stage 7

Develop, implement and embed category management

Iterative process




Supplier Contract 1

Time

Year 2 Year 1 Year 3 Year 4

Supplier Contract 1

Supplier Contract 3

Supplier Contract 2

Supplier Management




fficiency

isk

pportunity

upplier Motivation

Why Do It?

E R O S




‘Companies Don’t Compete, Supply Chains Do’

Bob Monzcka

Michigan State University




Task 1

Who should own the relationship with suppliers? Discuss in your tables and agree who you think

should own the relationship. Be prepared to provide your reasoning




Key Components of A Successful Supplier Management Programme

• Leadership

• Clear Objectives

• Key Stakeholder Support

• Tenacity and Commitment

• Willingness to Engage in a 2 Way Dialogue

• Communication

© Fujitsu Services 2006 Moving Procurement Forward

What we do

• We design, build and manage clients’ IT systems: Applications

Datacentres

Networks

Workgroups

• We provide, develop and improve client’s Business Processes HR

Procurement

Data Capture and Print Management

Document Management

• Through a choice of relationships: Consultancy

IT Projects

Managed Services

Outsourcing

• Where our role is: Prime Integrator

Partner

IT Sub-contractor

• In our chosen markets:

Central Government & Defence

Local Government & Health

Private sector

• Throughout Europe & the World




Fujitsu – Situation 2006

• Dedicated Supplier Relationship Managers

• Unmeasured

• Disconnected from the rest of Procurement

• Managers going native with Suppliers




The Case for Change

• Real sense that we were not leveraging the market

• Suppliers were dividing and conquering

• Competitors seemed to do it better than Fujitsu

• Identified opportunity to drive mutual benefit




Supplier Management Programme Year 1

• Programme launch

• Segmentation of supply base

• Basic measurement consolidated

• Internal supplier satisfaction surveys

• Comparison of performance across sectors and accounts




Supplier Management Programme - Scoring

Mechanism

Corporate Social

Responsibility Assessment

Finance / Commercial assessment

35%

Business Continuity

Assessment

Weighted Scorecard Average

40%

Profiler 25%

Final Score > 80%?




The rest

Premier Suppliers

Partners

Tier 1 Suppliers

Tier 2

Tier 3

Strategic

Alliances

2-6

15-30

15-30

200

* Premier suppliers are those that are scorecarded and eligible to participate in the Supplier Management Programme with the prospect of FS Gold Accreditation. The candidate

suppliers are selected by the cross company Supplier Relationship Management Board.




Third Party Differentiation Strategic Alliances

Premier Suppliers

Tier 1 Tier 2

Number 2-6 30 200 Remainder

Time Horizon 3-5 years 1 year 1 year As required

Management Engagement

Board Senior Management

Account Management

Stakeholders

Risk/Reward Mutual Individual Individual Individual

Exclusivity Mandatory Possible Unlikely Unlikely

Shared Objectives Mandatory Desirable Possible Unlikely

An alliance has to offer something that our competitors cannot get at the moment

The status of partner has to be earned. This is a different relationship from the partnership programmes run by companies such as Oracle




Supplier Management Programme Year 2 • Supplier Relationship Management Board Launched

• Representatives from all functions

• Clear decision making authority and responsibilities

• SRMB met four times a year • Meeting 1 – Agreed Premiers Suppliers, Agreed Key factors

• Meeting 2 – Monitored On-going Performance of Suppliers

• Meeting 3 – Identify ‘failing’ suppliers and agree action plan

• Meeting 4 – Agree Suppliers that will be awarded ‘Gold’ status for next year

• Supplier Awards • All Suppliers achieving Gold invited to Awards Dinner




Supplier Management Programme Year 3

Supplier ‘Rewards’ • Internal publicity • Quarterly briefings • Access to key decision

makers • Opportunity to demonstrate

capabilities to IT Architects




Outcomes • Brought Procurement firmly into the relationship

• Gave a platform from which to talk about poor performance (and a consequence for failing to address it)

• Introduced performance competition amongst suppliers, across procurement categories

• Suppliers responded to the Programme – made the Supplier Account Directors heroes

• Fantastic exposure for Procurement




• Supplier Management Programme

• Supplier Scorecards

• Supplier Operational Management Community and Processes

iGlobe

Partners

Tier 1 Suppliers

Tier 2

Tier 3

Strategic

Alliances

2-6

15-30

15-30

200

These suppliers are still very important to some accounts




Nokia - 3rd Party Supplier failure

• Supplier incident in Albuquerque,

New Mexico.

• Nokia and Ericsson both were supplied from the factory

• Owned and operated by Philips

• Caused the flow of chips to suddenly stop

• With mobile phone sales booming around the world, neither Nokia or Ericsson could afford to wait!




Mitigation & Fallback ……..

• No detailed mitigation

implemented

• Working day job

• Philip’s informs Nokia’s CPO. Chief Supply

Troubleshooter informed

• Immediately Nokia notice glitch in supply -

order no’s don’t add up

• Philip’s informs Nokia of further supply delays

• “Hit Squad” formed - 30 Nokia officials - to source

chips in Europe, USA & Asia

• Nokia CEO meets with Philip’s CEO in Amsterdam to

demand additional capacity & supply re-scheduling

Time

Mitigation

• Lessons Learned activity

• Early warning system introduction

• Surplus / emergency supply established

• Critical component register completed

• Secondary supply sourcing engaged

• Philip’s informs Ericsson that recovery may take

weeks • Ericsson middle managers brief bosses

• Philip’s informs Ericsson technician




Consequences…… Ericsson

• Cost to Group estimated at $400 million

• Market share fell 3% to 9% of market

• Withdrew from Handset market January 2001, outsourcing business to Flexitron in Singapore. (Loss making handset division later re-formed as new joint venture Sony-Ericsson in Oct 2001)

• Jan 01 - share price 50% below price at time of fire

Nokia • Production targets met • Market share increased by 3% to 30% (exactly Ericsson’s share) • Jan 01 - share price 15% below price at time of fire




Philips and Douwe Egbert

• DE was facing declining margins and a shrinking market

• Philips and Sara Lee/DE introduced the Senseo coffee maker in 2001 with huge success

• Philips produced the coffee maker, Douwe Egbert, developed the coffee pads




Outcomes

• Philips received the one-off revenue from the coffee maker

• DE profited from ongoing sales of the coffee pads • However the purchase price of € 59 was an

obstacle to rapid market penetration Douwe Egberts compensated with a first box of free coffee pads

• Later on the patent on the pad could not be sustained, and multiple suppliers of the pads emerged on the market




Rexam

• Rexam manufacture 54 billion drink cans a year • Their Supplier Management Programme has run

for 10 years • Primarily focused on improving quality and

developing supplier capability • Full support of senior management including CEO




Outcomes

• Shared enthusiasm with Supply Base • Shared innovation programmes • Suppliers seen as an enabler to Rexam’s

move into value add products • 83% improvement in quality over 10 years




Custom Built 3,400sq ft Supplier Relationship Centre, Opened 2012

Aims • Create significant value for Roche to fund their future pipeline. • Build strategic relationships (true partnerships) with external partners. • Demonstrate the Procurement goal to deliver innovative business solutions.




• New role of Value Creation Agents; full time, dedicated resources from external suppliers and Roche employees

• Target is to deliver hard benefits to Roche from the selected partners year on year




Task 2 How could better Supplier Management have mitigated or

avoided the impact that these situations had on the buying organisation:

• G4 Security at the Olympics • West Coast Rail • Horsemeat in Burgers • Bangladesh Factory Collapse • Or an issue in your own organisation for the group to

discuss




Final Thoughts

• You need to be doing Contract Management as a prerequisite for effective SM as is accurate data

• Procurement cannot own the relationship, but they can help to structure it

• It takes leadership, communication, a clear set of objectives, and tenacity

• One size does not fit all • As well as delivering benefits for your organisation SM

is a great platform for Procurement recognition




‘Its all part of the day job’

Rachel Lee

Group Procurement Director

Norland

In the end, however, I have a lot of sympathy with the following:




Real World Sourcing Scholarship

• £2500 towards any procurement based training

• Log on to the BravoSolution Education Network with the details you’ll receive tomorrow

• Complete the certification programme

• Check your ranking!

• The winner will be announced at the Sourcing Experts Dinner in December




THANK YOU!

Please feel free to contact me on

[email protected]

mailto:[email protected]



Spend Matters UK/Europe Real World Sourcing 38

Who Owns the Relationship?

CEO

Alliances Manager

Operations Director

Finance Director

Solution Architect

IT Director

Purchasing

Service Delivery

Supplier

Commercial Director

There is no right answer BUT

The relationships need to be managed and the

roles defined

The Hidden Asset - Effective SRM

Business

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