The Hidden Advantage - SRM
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
The Hidden Advantage – SRM
Guy Allen May 22nd 2013
The Hidden Advantage - SRM
©ALL RIGHTS RESERVED - Confidential
Spend Matters UK/Europe Real World Sourcing
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.
The Hidden Advantage - SRM
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Spend Matters UK/Europe Real World Sourcing
Agenda 1. What is Supplier Management?
2. Why Is It Important?
3. In Depth Look at a Real SRM Programme
4. Case Studies
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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.
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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
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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
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Supplier Contract 1
Time
Year 2 Year 1 Year 3 Year 4
Supplier Contract 1
Supplier Contract 3
Supplier Contract 2
Supplier Management
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fficiency
isk
pportunity
upplier Motivation
Why Do It?
E R O S
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‘Companies Don’t Compete, Supply Chains Do’
Bob Monzcka
Michigan State University
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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
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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
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© 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
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Fujitsu – Situation 2006
• Dedicated Supplier Relationship Managers
• Unmeasured
• Disconnected from the rest of Procurement
• Managers going native with Suppliers
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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
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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
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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%?
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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.
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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
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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
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Supplier Management Programme Year 3
Supplier ‘Rewards’ • Internal publicity • Quarterly briefings • Access to key decision
makers • Opportunity to demonstrate
capabilities to IT Architects
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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
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• 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
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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!
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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
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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
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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
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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
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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
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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
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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.
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• 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
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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
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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
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‘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:
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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
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THANK YOU!
Please feel free to contact me on
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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
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