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1 4 Purchasing Imperatives for Navigating Troubled Waters
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2 4 Purchasing Imperatives for Navigating Troubled Waters
Welcome to The Webinar
Attendees will be in listen only mode
All questions and comments can be
initiated thru the Questions feature
in your Control Box
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3 4 Purchasing Imperatives for Navigating Troubled Waters
Mike Betz
Managing Partner
Advanced Purchasing Dynamics
Manufacturing and Supply Chain for +25 Years
General Electric, Infor, FACTON
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4 4 Purchasing Imperatives for Navigating Troubled Waters
Jeoff Burris
Managing Partner
Advanced Purchasing Dynamics
Purchasing, Supply Chain and Business Unit
Leadership
Ford, Metaldyne, Magna and
Advanced Purchasing Dynamics
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5 4 Purchasing Imperatives for Navigating Troubled Waters
Jeff Zugay
APD Supply Chain Management Team
Advanced Purchasing Dynamics
Purchasing Leader for +25 Years
Ford Motor Company
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Industry impacts - The Post Covid Era
Developing a Plan for Managing the Urgent and Important Proactive Risk Mitigation
Supply Chain Stabilization
Strategic Plan Achievement
Future-Proofing the Supply Chain
Agenda
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APD’s Core Focus
Consulting and Technology company specialized in Purchasing and Supply Chain
Vast network of experts which is easily scaled
Accumulation of Industry data
Focused on Tier 1 Automotive
Cost Engineering Expertise
16 Years
Cost Collaboration
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These are Unprecedented and Uncertain Times
Auto companies wrestling a complex plan to restart the industry
“The different tiers of suppliers that feed into each other and into the car companies create a chain that could collapse due to one weak link.”
“The right word for this is unprecedented and uncertain," Kotagiri told the Free Press. "You can’t really plan for a specific situation.“
-- Magna International's President Swamy Kotagiri
“Restarting the auto industry is far more complicated than flipping a switch.”
April 17, 2020
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APD Supply Chain Management Team
APD Founder
Crisis Management Expert
Jeoff Burris Ken JonesKaren Homovec Jim Dixon
Paul PrestelJeff Zugay Kath Vigars Rachelle Lines
Kelly Ronayne Former Director of North
America Supply Risk
Management at Ford
Vehicle interior purchasing
expert
Global team management
Expertise in casting,
forgings, and stampings
In-depth Launch experience
Indirect/Direct purchasing
expert
Supply chain Professor
Extensive pre-launch and
launch experience
Crisis Management Expert
Executive Procurement
Leader
Former CPO
Former global resins
manager
Supplier Development Expert
Industry thought leaders
Successful track record of
guiding major
manufacturers through
industry downturns
Powerful teams behind
them
Prepared to help where
needed
Summary
Former Director of North
America Supply Risk
Management at Ford
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Pre-Covid-19 Supply Chain Trend
Pre-USMCA there was already a movement
USMCA accelerated this especially for latest OE entrants
to NA assembly
“Make where you sell;
Buy where you make”
We expect this trend to continue and late
adopters will face limited choices
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OESA Member Survey
Percent of current material costs for U.S. production (by dollar value) that is purchased outside of the United States.
49%
60%
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Poll Question #1
Which of the following supply chain issues do you expect to encounter in the next 24 months (check all that apply)
Quality
Capacity
Financial Distress
Missed APQP Dates for New Programs
Plant Closures
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The Automotive Crisis of 2008 -09
Quality Issues
Financial Problems
Layoffs
Unresponsive
Plant Closures
Bankruptcy
Consolidation
Supplier Resourcing
Sub-tier supplier problems
Missed Shipments
Early Warning Signs
Crisis Management
The “New” Norm
Tool Movements
Tool Shops Out of Business
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Implications
OE Response
Increased financial strain due
to whipsawing volumes
Lower profit old designs in
production longer
More pressure on suppliers
for cost reductions
Production Ramp up production to refill inventory ASAP
Search for true customer demand: volume/mix
Ramp down production
Push out programs
Cut internal costs
Cut product costs Material Cost Reductions
VA/VE and content removal
Bankruptcies??
Restructuring
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ImplicationsDescribe the general twelve-month outlook for your business. Over the past three months, has your opinion become…?
If weak:
Defensive financial posturing
Reduced investments
Reduced headcount
If strong:
Growth/Acquisition strategy
Conquest Sales
Cost management
Supplier Outlook
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Over the following periods, have you witnessed an increase in distress within your supply base?
About 80% said yes
Supply Chain Outlook
Implications
More risk of supplier financial
and operational issues
Need to identify suppliers
capable of take over business
Capacity available at “good
suppliers” – will not last
Opportunity to gain cost
transparency with suppliers
More need for cost reductions
from supply chain
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Poll Question #2
In the next 24 months, do you anticipate additional workload for your purchasing team? (select one)
None
0-33%
33-66%
66-100%
More
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Urgent Important
Balance is required to
deliver
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Supplier financial distress
Liquidity and cash
Delivery issues
Quality issues
New program launches
Tooling progress
Resourcing
PPE/critical indirect materials acquisition
Achieve purchasing objectives
Support for the company strategic direction
Cost reduction
Near shoring
Supplier consolidation
New program costing
Quality, cost and delivery initiatives
Future proofing the supply chain
Purchasing Organizations Must Manage the
Urgent and Important For the Next 4-5 Years
Urgent Important
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Supplier financial distress
Liquidity and cash
Delivery issues
Quality issues
New program launches
Tooling progress
Resourcing
PPE/critical indirect materials acquisition
Achieve purchasing objectives
Support for the company strategic direction
Cost reduction
Near shoring
Supplier consolidation
New program costing
Quality, cost and delivery initiatives
Future proofing the supply chain
Purchasing Organizations Must Manage the
Urgent and Important For the Next 4-5 Years
Urgent Important
Increased Focus on the Important
Company will rely more heavily on purchasing to achieve objectives
Becomes opportunity to work differently with your suppliers
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The Leaders we talk to see it this Way
Victims Survivors Leaders
Purchasing staffs laid off
Advising supply chain via releases
Handling issues “as they occur”
Risk to themselves
Risk to their supply base
Risk to their customers
Supply chain design: Haphazardly shaped by
events
Planning for issues
Communicating with their supply chain
Surveying the supply chain about risks
Adding resources to address issues
Employing extra
resources
Will put out fires quickly
Unlikely to achieve
strategic objectives
Viewing this as an Opportunity to reshape supply chain
Improved Cost Structure
Work with suppliers in a different manner
Stronger – Win New and Conquest Business
Better Customer Relationships
Become the “Go to” Company
Smaller, future-proofed supply chain
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1) Proactive Risk Mitigation– using key indicators to identify potential issues
2) Supply Chain Stabilization – providing preventative and corrective actions
3) Strategic Plan Achievement– supporting evolving needs of the company
4) Future-Proofing the Supply Chain – resulting in stronger, more aligned suppliers
Purchasing Imperatives4
Urgent
Important
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Identify Risk Areas– financial, quality, delivery…
– key commodities & suppliers
Identify Key Risk Predictors– using key indicators to identify potential issues
Obtain Real Time Status of Key Predictors
– providing preventative and corrective actions
Assess Current Suppliers/Processes
– identifying
• critical suppliers
• potential and actual issues
Take Proactive and Corrective Actions
– using experienced resources
– verifying effectiveness
Develop and implement a proactive and sustainable Risk
Mitigation Plan.
Purchasing Imperative #1
Proactive Risk Mitigation
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Identify Risk Areas, Key Risk Predictors, and Assess Status
Identify all supplier types critical to success:
Direct materials
Tool shops
Logistics providers
Packaging providers
Mission critical indirect materials - PPE/Spare Parts/Tooling/Energy
Complete a supplier risk/health assessment that includes risks due to:
Supplier performance (liquidity/financial strength, delivery, quality)
Commodity complexity/difficulty/limited supply options
Supplier risk management of their supply chain
Internal using plants ability/performance in managing risks
Known post-Covid-19 issues identified
Lessons-Learned on failure modes
Establish early Warning Detection System for Watch List/at risk suppliers for
quality, delivery and financial issues:
Suppliers with pre-Covid-19 issues are most likely to create issues now
Take a closer look at suppliers who were at risk but only being
monitored; their conditions may have deteriorated
Develop a sustainable ongoing process to monitor Red and Yellow
suppliers
Review and strengthen pre-Covid-19 supplier quality, delivery and financial
risk management processes - prevent escape points of lessons-learned
failure modes.
Complete scenario planning, stress test plans and develop action plans
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How will we proactively identify issues?
Address pre-Covid at risk suppliers
Look for warning signals/ liquidity risk– economic requests, short ships, quality
More frequent financial reviews.
Take Proactive and Corrective ActionsExample: Supplier Financial Distress
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How will we proactively identify issues?
Address pre-Covid at risk suppliers
Look for warning signals/ liquidity risk– economic requests, short ships, quality
More frequent financial reviews.
What tools can we use to address issues?
Contingency Planning
Improve payment terms
Bailment agreements
Bank builds
Tool moves/resourcing
Acquisition
Identify and Fix Op. Inefficiency
Take Proactive and Corrective ActionsExample: Supplier Financial Distress
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Have a Crisis Team – focused on issues
– skilled resources
Conduct Risk
Assessments
– Ongoing
– Suppliers, commodities, programs
Take Proactive and Corrective Actions
– using key indicators
– verifying effectiveness
Communicate– to suppliers
– within your company
Know When to
Cut and Run– all suppliers can not be saved
The economic impact of Covid-19 will weaken manufacturing
supply chains for years.
Purchasing Imperative #2
Supply Chain Stabilization
Key Elements of a Stabilization Plan
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Have a Crisis Team and Complete Risk Reviews
Manage financial distress and quality concerns
Find alternate suppliers and anticipate tooling issues
Set up a dedicated crisis management team to proactively engage at–risk suppliers and resolve issues.
Ensure the crisis management team has the necessary skills and capacity. Identify additional resources that can be brought in if required.
Provide executive guidance and leadership to the crisis team.
Have the team proactively engage high risk suppliers to conduct risk assessments before issues occur.
Plan for the team to be in place for 12-18 months.
Provide the team with ongoing updates from customers and operations.
Assess supply chain lead times and inventory requirements under a Covid-19 microscope. How will they need to be adjusted.
Complete risk assessments and establish a playbook with lessons learned to proactively mitigate risk and protect supply and profitability.
Use a Problem-Solving process such as 8D
Develop action plans with at-risk suppliers
Execute action plans with at-risk suppliers
Develop contingency plans for at-risk supplier parts in parallel
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Communication and Supply Chain Stabilization
Execute production ramp-upPro-actively address issues Clear consistent communication of customer and operations
production plans and issues is critical.
Establish process to rapidly disseminate changes to the
supply chain to provide them with the opportunity to react.
Establish clear, realistic demand schedules with
customers. Protect priority demand and minimize
unnecessary inventory or build smart inventory – establish
Smart Supply Chains.
Ensure method for bringing every supplier financial, quality
and delivery issue to the attention of the crisis team. The
team needs to be aware of all issues, including the minor
ones that the consuming plants handle on their own. Look
for macro/systemic concerns!
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Enablers to Stabilize Supply Chain
Mitigate urgent issues: downtime, staggered availability, and other unforeseen problems
It is impossible to predict the frequency and magnitude of
the issues through 2020/21. Scenario plan for possible
outcomes.
Prepare for a potential Wave 2 of Covid-19 supply
disruption in the Fall/Winter.
Enablers for success include:
Fast & Transparent Internal + External Communication
Robust, Smart Supply Chain Quality Operating System
Resources – dedicated, skilled, and sufficient capacity
Make tough decisions as required
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Understand Company Strategy Changes
– Growth?
– Profitability?
Revise Purchasing Strategy
– Align to company strategy
– Challenged by economic/supplier landscape
Align KPI’s– using key indicators
– verifying effectiveness
Review Tools – to suppliers
– within your company
Strategic Company Plans will Change in Response to the
Economic and Industry Conditions
Purchasing Imperative #3
Strategic Plan Achievement– supporting evolving needs of the company
Key Elements for Strategic Plan Achievement
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Cut internal costs beyond sales decline
Close plants
Stop activities
Pare down products
Company Strategy
Retrench Cut internal costs in line
with sales decline
Maintain plants
Pare down activities
Maintain products
Maintain Grow Manage costs
Pursue acquisitions
Conquest sales opportunities
Expand products
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Important Company Objectives
Do not lose sight: YOY negotiation, VAVE, new programs, ongoing efforts to improve quality, delivery etc…
The need for purchasing to deliver on strategic objectives like cost reduction and new product introduction will not go away. In fact, for many companies, the strategic purchasing objectives will be even more important to help the companies manage through the crisis.
Leading organizations create separate supply chain crisis management teams to deal with the urgent issues and enable the core purchasing team to continue to deliver the strategic plan.
Do not lose sight of the company's strategic objectives required to meet the business plan:
Cost reductions
VAVE efficiency initiatives
Near shoring/reducing the supply chain
Revision of contract payment terms
Re-negotiate Lump Sum costs/settlements to amortized payment plans
Commodity Strategy development and implementation
Assess resources required to complete all prioritized activities
Eliminate some prior priorities to allow for focus on those deemed critical
Review alternatives to augment staff
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Do you have the tools to answer?
What does it cost?
What should it cost?
Is there a gap?
What is the plan to close the gap?
What is the plan to reduce the
should-be costs?
Yes
No
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e-RFQ
Spend analytics
Total Acquisition Cost
Total Relationship Cost
Have a well-designed tool Set for all 3
Does Cost Multivariate models
Linear models
Cost estimation models
Benchmark data
Should Cost Would Cost
Commodity Strategies
Supply base consolidation
Kaizen
VA/VE
Gap Closure
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Should Cost Tools
Cost Knowledge & Collaboration
Gap
to
Op
tim
al P
rici
ng
Optimal Pricing
Piece Price
8-18%
Cost Breakdowns
6-13% 3-7%
Company Cost Model
Open Book Cost Model
Industry Cost Model
2-5%
Cost FocusPrice Focus Value Focus
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Digital Transformation Strategy
– Identify key questions
– Develop digital fluency
– Build data lake
– Employ advanced analytics
Achieving Optimal– Align to company strategy
– Challenged by economic/supplier landscape
Visibility in the Supply Chain
– Identification two layers down
– Continuously updated for supplier location and key business requirements
Supply Base Strategy– Aligned with company
– Action Oriented
– Driven by Ideal Supplier Profiles
Take steps to prevent
recurrence while
managing the crisis
Purchasing Imperative #4
Future Proofing
Future Proofing
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Industry 4.0
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Purchasing 4.0
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4.0 is About Moving from Data to Wisdom
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Data is not Wisdom
Our business processes
generate lots of data
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Digital Transformation … From Data to Wisdom
What is right or optimal?
What is the plan to get to optimal?
Optimal quality
Optimal quantity
Optimal source
Optimal time
Optimal cost
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A Cost Management and Digital Transformation
Strategy for Buying Organizations
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Digital Transformation Strategy
Purchasing 4.0
Estimation with confidence
Probability pricing - % chance
of obtaining pricing level:
In a given location
At a given date
From a given supplier
Fewer suppliers/aligned/
better performance
Purchasing 3.0
Multiple RFQ rounds
to multiple suppliers
Uncertainty
Poor relationships
with too many
suppliers
Suppliers not
responding to RFQ’s
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Future-Proof Supply Chain
Have a strategy: “Make where you sell; buy where you make”
Understand cost competitiveness of regions by commodity
Ensure near and far-shore sourcing decisions are made not on
piece price but on risk-adjusted total cost of ownership and
relationship
Fewer suppliers more closely aligned:
Continuous two-level visibility
Ideal supplier profiles
Grow “Leader” suppliers
Pre-certify potential go-to suppliers in the marketplace
Implement a long-term strategy for Digital Transformation:
Know the questions that lead to wisdom
Understand where the data is and how it needs to be analyzed
Develop digital fluency in purchasing
Build to a technical roadmap
Optimize processes
Take steps to prevent
recurrence while
managing the crisis
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Are there any areas of your plan you are likely to reconsider as a result of this discussion? (check all that apply)
Supplier risk assessment process
Identification of preventative and corrective actions
Restart and stabilization efforts
Plan for delivering strategic objectives
Strategy for future proofing our supply chain
Poll Question #3
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There is time to transition
Victims
Survivors
Leaders
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APD’s Supply Chain Management Team Focus
Restart and Recovery Plan
Assessment
In-depth review of current plans for
managing through supply chain restart
while achieving important purchasing
strategies and company objectives
▪ Plan for your suppliers
▪ Plan for their suppliers
▪ Identify constraints
Crisis Mentorship and
Monitoring
▪ Critical Supplier Response Team
▪ Distressed suppliers
▪ Missed shipments
Ongoing mentorship and monitoring
of critical situations:▪ Supply Chain Restart
▪ Achieving Important Purchasing
Strategies and Company Objectives
▪ Supplier plant closures
▪ Supplier wind down
▪ Supplier Bankruptcy
Augmented Expertise
APD resources applied to managing
critical issues after restart or achieving
important purchasing strategies and
company objectives
▪ Supplier risk mitigation
▪ Supplier resourcing
▪ Identify critical tooling
Full Plan Development and
Implementation
Future-Proof
Your Supply Chain
▪ Early warning system
▪ Risk mitigation concepts
▪ Science and data driven approach
APD develops and implements a
comprehensive plan to manage crisis
while achieving important purchasing
strategies and company objectives
▪ Plan for your suppliers
▪ Plan for their suppliers
▪ Identify constraints
▪ Personnel
▪ Expertise
▪ Placement
Special Projects
Whether it’s seeking to find cost
savings, near shore the supply chain,
find alternative suppliers or whatever
your needs, APD is available to help
▪ Resin spend analysis and cost reduction
▪ Metals spend analysis
▪ Near shoring
▪ Market test / finding
new suppliers
▪ Commodity strategy
▪ Warranty sharing
APD develops a Future-Proof and
Digital Transformation strategy to
ensure your supply chain is prepared
for the next major event
▪ Tool movement
▪ Sub-tier problems
▪ Indirect
▪ Purchasing micro services
▪ Evolve digital
transformation over time
▪ Everything on an app