The 5 Best Supply Management Practices In Use Today

The Five Best Supply Management The Five Best Supply Management Practices in Use TodayPractices in Use Today

by F. Michael Babineaux, CPSM, C.P.M., A.P.P.President/CEO

Babineaux Educational Services and Training, Inc.www.BESTraining.com

901.853.0539

Who Am I?Who Am I?

• F. Michael “Mike” Babineaux– 40+ years Supply Management Experience– 30 year FedEx Veteran– Lifetime C.P.M. & A.P.P.– Recent CPSM– SCM Educator and Coach

• Babineaux Educational Services and Training, Inc.• www.BESTraining.com• 901.853.0539

World Class Excellence -- World Class Excellence -- Strategic ProcessesStrategic Processes

Develop Commodity/

Purchase Family Strategies

Establish and Leverage a

World-Class Supply Base

Establish Appropriate

Strategic Alliances

INTEGRATED AND

ALIGNED

Supplier Development and Quality

Manage Costs Strategically Across the

Supply Chain

Integrate Suppliers into New Product &

Service Development

Integrate Suppliers into

the Order Fulfillment

Process

World Class Excellence -- World Class Excellence -- EnablersEnablers

EstablishGlobally Integrated and Aligned P&SC Strategies/Plans

INTEGRATED AND ALIGNED

Develop Organization and Teaming

Strategies

DeployGlobalization

Develop Procurement and

Supply Chain Measurements

Develop and Implement Enabling IS/IT

Systems

Establish Human Resource

Development/ Training

12 World Class Supply 12 World Class Supply Management PracticesManagement Practices

Strategic Processes

• Procurement Strategy Development

• Supplier Integration• Leverage the Supply Base• Develop Strategic

Alliances• Quality Management• Cost Management

Enabler Processes

• Strategic Goal Alignment • Teaming Strategies• Performance Measurement• Globalization• Information Systems

Integration • Human Resource

Development

12 World Class Supply 12 World Class Supply Management PracticesManagement Practices

Strategic Processes

• Procurement Strategy Development

• Supplier Integration• Leverage the Supply Base• Develop Strategic

Alliances• Quality Management• Cost Management

Enabler Processes

• Strategic Goal Alignment • Teaming Strategies• Performance Measurement• Globalization• Information Systems

Integration • Human Resource

Development

The Five BestThe Five Best

1. Strategic Goal Alignment

2. Procurement Strategy Development

3. Supplier Integration

4. Teaming Strategies

5. Performance Measurement

What happens when . . .What happens when . . .

Supply ChainStrategy

InternalCustomerStrategy

YouMisalignment Creates Confusion for

Strategic Goal AlignmentStrategic Goal Alignment

"Strategic Performance Measurement for Purchasing and

Supply,“ (A CAPS Research study in collaboration with

McKinsey & Co)

“Best-in-class companies align the strategy and objectives of the supply management organization with those of the rest of the organization."

• Goal Alignment Concepts– Vertical Alignment

• Business Vision & Mission– Low cost producer

• Key Corporate Objectives – Reduce expenses

• Supply Management Goals– Cost reduction

• Individual/Management Performance Objectives

– Cost Savings

Vision

Mission

Objectives

IPO/MBO

• Goal Alignment Concepts– Horizontally aligned

• Strategic objectives of strategic business units• Strategic objectives of functional groups.

– Conflict» Bulk buying discount vs. Inventory

holding cost

• Stakeholder Alignment Process

EvaluateRelationship

EvaluateLevels of

Alignment &Involvement

IdentifyStakeholder

Groups

EvaluateImportance

• Stakeholder Alignment Process

DefineOutcome

OfAlignment

DevelopAlignmentStrategies

ImplementAlignmentStrategies

Tract Results& DesignFollow upActions

• Goal Alignment Concepts– Externally aligned

• Customers and Suppliers

Visible top management direction and supportClearly defined strategy and goalsBuy-in from key stakeholders Establishment of uniform metrics Implementation of cross-functional/ cross-

organizational teams Internal and external education and training Information technology and systems support Elimination of functional barriersCustomer focusContinuous communication and feedback throughout

the supply chain

Critical Success Factors toCritical Success Factors toAchieving AlignmentAchieving Alignment

Critical Success Factors toAchieving Alignment Rating

(1=Poorly, 2=Below Avg, 3=Avg, 4=Above Avg and 5=Excellent)(1=Poorly, 2=Below Avg, 3=Avg, 4=Above Avg and 5=Excellent)

Factor Rate• Visible top management direction and support ____• Clearly defined strategy and goals ____• Buy-in from key stakeholders ____ • Establishment of uniform metrics ____• Implementation of cross-functional teams ____• Internal and external education and training ____• Information technology and systems support ____• Elimination of functional barriers ____• Customer focus ____• Continuous communication and feedback ____

Total ____

Critical Success Factors toAchieving Alignment Weighting & Rating

Factor Weight X Rate = ____• Visible top management direction and support ____ _____ ____• Clearly defined strategy and goals ____ _____ ____• Buy-in from key stakeholders ____ _____ ___• Establishment of uniform metrics ____ _____ ____• Implementation of cross-functional teams ____ _____ ____• Internal and external education and training ____ _____ ____• Information technology and systems support ____ _____ ____• Elimination of functional barriers ____ _____ ____• Customer focus ____ _____ ____• Continuous communication and feedback ____ _____ ____

Total 100 ____

Key PointKey Point““If you’re not singing the same If you’re not singing the same

song, you’re just making a bunch song, you’re just making a bunch of noise and – of noise and –

your performance will suffer”your performance will suffer”

The Best Supply Management The Best Supply Management PracticesPractices

Procurement Strategy DevelopmentProcurement Strategy Development

• Procurement Decision Tool– Market Complexity

– Degree of Competition– Geographical Dispersion– Supplier Cooperation

“Price concessions and collaboration”

• Procurement Decision Tool– Market Complexity– Impact on Business

• Risk• Value

“What happens if you don’t have it?”

• Procurement Decision Tool– Market Complexity– Impact on Business– Prioritization

• High to Low

• Procurement Decision Tool– Market Complexity– Impact on Business– Prioritization– Procurement Strategies

• Routine• Bottleneck• Leverage• Strategic

Procurement Decision ToolProcurement Decision Tool

Business Impact

Marketplace Complexity

LowHigh

Routine

Procurement Decision ToolProcurement Decision ToolRoutine CharacteristicsRoutine Characteristics

• Many capable suppliers• Fewer total dollars spent• Low priority items• May consume a disproportionate amount of time and

dollars to acquire• Developed quality and technology• Able to move easily between suppliers--low

switching costs

Business Impact

Low High

StrategicLeverage

Routine Bottleneck

Procurement Decision ToolProcurement Decision ToolRoutine StrategyRoutine Strategy

• Remove effort-transactions through low dollar purchase systems– Standardized contracts – p-cards

• The primary goal is to minimize the procurement costs of these items.

Business Impact

Low High

StrategicLeverage

Routine Bottleneck

Business Impact

LowHigh

Routine Bottleneck

Procurement Decision ToolProcurement Decision ToolBottleneck CharacteristicsBottleneck Characteristics

• Small number of suppliers• Low to medium annual dollars• Customized specification and technology

Business Impact

Low High

StrategicLeverage

Routine Bottleneck

Procurement Decision ToolProcurement Decision ToolBottleneck StrategyBottleneck Strategy

• Focus on continuous supply– Reduce Custom specifications

or technology– Purchase in quantity– Monitor Inventory closely– The relationship is important but, search

for alternative suppliers

Business Impact

Low High

StrategicLeverage

Routine Bottleneck

Business Impact

LowHigh

Leverage

Routine Bottleneck

Procurement Decision ToolProcurement Decision ToolLeverage CharacteristicsLeverage Characteristics

• Greater number of suppliers• Medium to high annual dollars• Low risk to obtain, but major disruption• Multiple users• Developed quality and technology• Able to move easily between suppliers

Business Impact

Low High

StrategicLeverage

Routine Bottleneck

Procurement Decision ToolProcurement Decision ToolLeverage StrategyLeverage Strategy

• Focus on volume– Leverage the organization’s

volume to get lower prices– Combine user requirements– Form categories of items

Business Impact

Low High

StrategicLeverage

Routine Bottleneck

Business Impact

LowHigh

StrategicLeverage

Routine Bottleneck

Procurement Decision ToolProcurement Decision ToolStrategic CharacteristicsStrategic Characteristics

• Few capable suppliers• Product/services success critical• Unique or customized items• Unable to move between suppliers easily• Cost analysis yields high benefits• Unproven or undeveloped technology

Business Impact

Low High

StrategicLeverage

Routine Bottleneck

Procurement Decision ToolProcurement Decision ToolStrategic StrategyStrategic Strategy

• Build Relationships – Collaborative or

interdependent relationships (e.g. Strategic Alliances)

Business Impact

Low High

StrategicLeverage

Routine Bottleneck

Business Impact

Low High

StrategicLeverage

Routine Bottleneck

Key PointKey Point““If you use the same strategy to If you use the same strategy to buy airplanes as you do to buy buy airplanes as you do to buy

pencils, pencils, your performance will suffer”your performance will suffer”

Supplier Integration in New Supplier Integration in New Product/Service DevelopmentProduct/Service Development

“Firms looking for ways to –

– decrease concept to customer development time

– improve quality– significantly reduce the cost of the

resulting product

are involving suppliers earlier in the design process.” “Best of the Best” by Aberdeen Research

Supplier IntegrationSupplier Integration

• Early Supplier Involvement– Product/Service Life Cycle

• Pre-commercialization• Introduction• Growth• Maturity• Decline

• Early Supplier Involvement– Manufacturing/Service Design Process

• Use of Supplier expertise and experience

“Firms looking for ways to –

– decrease concept to customer development time

– improve quality– significantly reduce the cost of the

resulting product

are involving suppliers earlier in the design process.”

“Best of the Best” by Aberdeen Research

• Early Supplier Involvement– Product/Service Development

• Prototypes/Demonstrations• Replacement

materials/alternative methods

• Early Supplier Involvement– Cost

• Cost projections of a new product or service

• Early Supplier Involvement– Quality

• Supplier knowledge of quality requirements

• Early Supplier Involvement– Technology

• Influence final material/application selection

• Early Supplier Involvement– Design

• Experience in serving a particular market

• Early Supplier Involvement– Co-Development

• Sharing costs

• Early Supplier Involvement– Cycle Time

• Through reduction in redundancies

• Early Supplier Involvement– Confidentiality Issues

• Proper controls– Disclosure Parameters– Mutual Non-Disclosure

Agreements– Dispute resolution

clause

Key PointKey Point““Suppliers know more about Suppliers know more about

what you buy than you do, so if what you buy than you do, so if you don’t use them, your you don’t use them, your performance will suffer”performance will suffer”

Teaming StrategiesTeaming Strategies

• Procurement Project Teams • Cross-Functional Teams

An Action Plan for Creating An Action Plan for Creating Effective TeamsEffective Teams

by Robert M. Monczka, Ph.D., C.P.M. and by Robert M. Monczka, Ph.D., C.P.M. and Robert J. Trent, Ph.D.Robert J. Trent, Ph.D.

Studies by MSU reveals– 80% of Best-in-Class organizations

emphasize the use of Supply Management Project teams.

• Procurement Project Teams– Definition - The application of project knowledge,

skills, tools and techniques to procurement project activities to meet customer requirements

• A Beginning and an End

• Procurement Project Team Stages– Initiation

• Root Cause analysis• SWOT• Feasibility Analysis

– Net Present Value– ROI

• Business Case

• Procurement Project Team Stages– Planning

• Scope Development• Roles & Responsibilities• Project Plan Approval

• Procurement Project Team Stages– Execution

• Change Management

Why change initiatives failWhy change initiatives fail

Inconsistencies between

management words and

MessageMessage

“Actions speak louder than

words”

Lack of system to evaluate

change results

MessageMessage

“You can’t manage what

you don’t measure”

No change of reward systems

MessageMessage

“Recognize and Reward Performance

You want Repeated”

Unrealistic timelines

MessageMessage

“Deadlines can be a

challenge, but obtainable”

Lack of stakeholder

Buy-In

MessageMessage

“Stakeholder involvement

breeds buy in”

Training is not enough

MessageMessage

“Practice makes perfect”

• Procurement Project Team Stages– Monitoring & Control

• Contract Management– Performance measurement– Risk Monitoring

• Project Management Software– PERT & Gant Charts

• Performance Reporting– Cost– Schedule

• Procurement Project Team Stages– Closure

• Process• Post Project Audit

• Cross-Functional Teams– Purpose

• To permit different viewpoints and perspectives

• Cross-Functional Teams– Supply Management Roles

• Leadership• Facilitation• Contributor

• Cross-Functional Teams– Advantages/Disadvantages

• Consensus Building• Group Think

• Cross-Functional Teams– Organizational cultures

• Traditional vs. Team• Skill Considerations• Personality Considerations• Leadership

Key PointKey Point

““Two heads are better than one, Two heads are better than one, so if you’re not including them in so if you’re not including them in the decisions, your performance the decisions, your performance

will suffer”will suffer”

Performance MeasurementPerformance MeasurementAberdeen Benchmarking ResearchAberdeen Benchmarking Research

• Best-in-Class companies are more than 2.5x more likely to use performance monitoring, management, and optimization solutions.

• Best-in-Class companies are 1.67x more likely to use portals or dashboards for consolidating and reporting of performance data.

Performance MeasurementPerformance Measurement

Department Staff Suppliers

• Department– Organizational Expectations

• Objectives Congruence– Organization– Suppliers & Customers

• Department– Organizational Expectations

• Scorecard– Quantitative– Qualitative

• Department– Reasons for Scorecard

• Determine effectiveness– To objectives– Of department management

• Measure improvement/deterioration• Provide Resources• Determine Value

• Staff– Issues

• Objective Alignment– Vertical & Horizontal

• Staff– Issues

• Success Criteria– Known in advance

• Staff– Issues

• Appraisal Factors– Quantitative and Qualitative

• Staff– 360o Reviews

• Users• Management• Peers• Suppliers• Others

• Staff– Feedback

• Timely • Corrective actions• Individual Development Plans

• Suppliers– Scorecards

• Qualitative measures• Quantitative measures• Price, Delivery & Quality (PDQ)• Other/specific

• Suppliers– Others/specific

• Cycle/Lead time Reductions• Productivity Improvements• Flexibility and Responsiveness• e-Commence Capabilities• Innovation

Open Innovation: the next frontier in Open Innovation: the next frontier in innovation managementinnovation management

• "When developing new ideas, innovation leaders say they rely on their customers, business partners and competitors to supplement their own internal functions.

• Companies that profess best practices in innovation produce nearly half of their innovations from ideas generated outside the company."

Research Study by A.T. Kearney,

Key PointKey Point

““You can’t manage what You can’t manage what you don’t measure, so if you don’t measure, so if

you’re not measuring you’re not measuring performance . . .”performance . . .”

The Five BestThe Five Best

The Five Best Supply Management The Five Best Supply Management Practices in Use TodayPractices in Use Today

by F. Michael Babineaux, CPSM, C.P.M., A.P.P.President/CEO

Babineaux Educational Services and Training, Inc.www.BESTraining.com

901.853.0539

The 5 Best Supply Management Practices In Use Today

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Transcript of The 5 Best Supply Management Practices In Use Today

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