Supplier management - an indispensable instrument

for the prequalification of suppliers

Thomas-M.MaierIn-house lawyer, KELAG Wärme GmbH

Kiev, 6-7 september 2012

1TMM - 2012

Agenda

Introductory remarks

Procurement strategy

Commodity strategy

Supplier strategy / Supplier management

Process

Content

Principles

Assessment / practical example

Lessons learnt

2

Introductory remarks (1)

The upmost aim of any effort to improve a companies procurement is to rise efficiency and effectiveness and to reduce risks …

…therefore the challenges to manage are:

Cost pressure

Rising Risks (raw materials, costs of exchange, …)

Complexity of procurement laws

Globalization

Time pressure in any project

Changing technologies

Corruption

3

Introductory remarks (2)

In the field of purchase and procurement the answers may be …

A reasonable procurement strategy

A balanced commodity strategy, that is in line with the requirements of the company

An efficient supplier management

Predominantly this will lead to a liaison with the best and most competitive suppliers

4

Introductory remarks (3)

In the history of procurement it is to notice that expectations and benefit as well as the roll of time changed

In the past (till 80´s): Enough time / quality and price were crucial

Nowadays : procurement is an interface between top-management and the carrier of demand / beside short time, quality and price information and its rapid change is crucial

Factor of success

Vision, aim, strategy

Team (!), communication, methods and tools (!)

5

Procurement strategy (1) The procurement strategy is part of the materials logistics of a

company and in this field crucial for

Quantity and quality of …

…particular works, goods and services …

… within a certain prize frame

Partner: The supplier

Question is: Where do you want to go and what do you need?

6

Procurement strategy (2)

7

PVO (purchase volume)

Com

ple

xit

y /

ris

ks

Less aggressive or defensive position

Technical Standardisation

Supplier Management

Supplier management

Innovation, Joint Development, Use the market excessively

Risikmanagement

Reduce sourcing costs

C-Materials

Automatisation

Strategic Sourcing,

Use the market

Supplier Management

Zero

Commodity strategy (1)

Before starting with the supplier management one must know indispensable which commodities a company needs; therefor you need to know the company´s aims.

Need to know:

Overview on commodities (in case of my company: insulated pipes, works, plants, control engineering – not food chemistry, boats & caravans, medical instruments, …)

Own position in the group

The market and its tendencies

8

Oral Example: preinsulated pipes

Commodity strategy (2)

9

ResultStrategy(how?)

Tactics(with what?)

Who does what? Vision / aims

Review &Controlling

Ressources

Various influencing

factors

Values

Supplier strategy and supplier management(1)

In most cases the PVO reaches up to 50% of a company´s turnover – the performance of the procurement efforts therefore is decisive. Question is: How to find YOUR supplier?

The challenges are

Concentration on the best

Suppliers with the capability to support you in your own aims

Suppliers with sufficient and good ressources

Ability for cooperations

Potential for innovations

Generation of win – win (b2b) and win (b2c) situations

10

Supplier strategy and supplier management(2)

Why supplier management?

Creating competition in between the market participants

Breaking up monopolistic market powers (if feasible)

Reducing costs

Knowing the technology is conditional for being up-to-date

Growing together

Creating long term relations (if feasible)

Creating mutual confidence to detect risks earlier

Reducing Costs of logistics

Creating sustainability

11

Supplier strategy and supplier management(3)

Factors of success for your choice?

Using a holistic approach (starting with the procurement strategy, then the commodity strategy and afterwards the supplier strategy)

Applying fair methods of choice when entering a partnership

Using transparent and open minded criteria

Searching individualism

Creating a “good relation management” (if feasible)

Being direct – also when ending a partnership

The question is: How can I reach my aim with MY supplier?

12

Supplier management / process

13

Company

vision, aims

Procurement strategy

leads to

commodity Strategy

leads to

Supplier strategy

Needs

quantity, quality,

date, terms,

conditions,

sustainability

market

Raw materials,Suppliers,

Surroundings,Other

influences

Suppliermanagement

Supplier management

Phasing out

Assessment

Advancement

and

corrective action

Control &

reviewDevelopement

Choice of suppliers Tender

and

Execution of the

contract

Supplier management / content

14

Supplier management

Phasing outAdvancement and

corrective action

Control&

review

Choice of suppliersAssessment

Development

Supplier management / principles

Company wide and consistent work

i.e. Prices and economies, quality, logistics, technology and management

Assessment is depending on the commodity strategy

PVO influences the assessment, but does not steer it

Categorization must be clear

A-, B- and C – supplier and “traffic light categorization”

Using SWOT-Analyses

Documentation and re-evaluation

“The system must be lived”

15

Supplier management / assessment

Practical example

16

Lessons learnt

Depending on the branch the implementation of a strategic approach for procurement is very hard

Company with 200 people: 1,5 years till you “harvest your first fruits”

Timeframe is depending on resources

“Knowledge-curve” about suppliers and market is rising steeply after 2 years

Knowledge is always parked anywhere – with a strategic approach you use means and methods to create a knowledge pool

Supplier management is a permanent process

17

Contact

18

Mag. iur. Thomas-M. Maier, LL.M.Head of strategic procurement and legal department

Tel: + 43 / 676 / 7941117

E-Mail: thomas-michael.maier@kelagwaerme.at

KELAG Wärme GmbHSt. -Magdalener-Straße 819506 VillachAustria